Greenberg Corp. is considering opening a subsidiary to expand its operations. To evaluate the proposal, the company needs to calculate its cost of capital. You've collected the following information: - The firm has one bond outstanding with a coupon rate of 8%, paid semi-annually, 10 years to maturity and a current price of $1,233.84, implying a yield to maturity of 5%. - The firm's preferred stock pays an annual dividend of $1.48 forever, and each share is currently worth $86. - New bonds and preferred stock would be issued by private placement, largely eliminating flotation costs. - Greenberg's beta is 0.7, the yield on Treasury bonds is is 1.8% and the expected market risk premium is 6%. - The current stock price is $21.29. The firm has just paid an annual dividend of $0.62, which is expected to grow by 3% per year. - The firm uses a risk premium of 4% for the bond-yield-plus-risk-premium approach. - New equity would come from retained earnings, thus eliminating flotation costs. - The firm has marginal tax rate of 34%. - The company wants to maintain is current capital structure, which is 50% equity, 10% preferred stock and 40% debt. What is the (pre-tax) cost of debt? What is the cost of preferred stock? Part 3 10 Attempt 1/20 for 10pts. What is the cost of equity using the CAPM? What is the cost of equity using the dividend growth model? Part 5 Attempt 1/20 for 10 pts. What is the cost of equity using the bond yield plus risk premium