Hewlett Packard (HP) has the following balance sheet from its latest fiscal year: Hewlett Packard (Millions of Dollars) Cash $10 Accounts Payable $10 Accounts Receivable 20 Accruals 15 Inventories 20 Short-term Debt 0 Current Assets $50 Current Liabilities $25 Net Fixed Assets 50 Long-term Debt 30 Preferred Stock (50,000 shares) 5 Common equity Common Stock (3,800,000 shares) $10 Retained Earnings 30 Total common equity $40 Total Assets $100 Total liabilities and equity $100 The following information is also provided for Hewlett Packard: 1) The long-term debt consists of 29,412 bonds, each having a 20-year maturity, semi-annual payments, a coupon rate of 7.6%, and a face value of $1,000. Currently, these bonds provide investors with a yield to maturity of 11.8%. If new bonds were sold, they would also have an 11.8% yield to maturity. 2) HPs preferred stock has a $100 par value, pays a quarterly dividend per share of $2, and has a yield to investors of 10%. New preferred stock would have to provide the same yield to investors, and the company would incur a 3.85% flotation cost to sell it. 3) The company has 3.8 million shares of common stock outstanding, a price per share of $20, dividend per share of $1, and earnings per share of $5. The return on equity (ROE) is expected to be 10%. 4) The stock has a beta of 1.6. The current Treasury bond rate is 6% and the market risk premium is estimated to be 5%. 5) HP is in the 25% tax bracket. Assume that you were recently hired by HP as a financial analyst and that your boss, the CFO, has asked you to estimate the companys WACC under the assumption that no new equity will be issued. Your cost of capital should be appropriate for use in evaluating projects that are in the same risk class as the assets HP now operates. Based on your analysis, answer the following questions. a. What are the current market value weights for debt, preferred stock, and common stock? (Hint: Do your work in dollars, not millions of dollars. When you calculate the market values of debt and preferred stock, be sure to round the market price per bond and the market price per share of preferred to the nearest penny.) b. What is the after-tax cost of debt? c. What is the cost of preferred stock? d. What is the required return on common stock using CAPM? e. Use the retention growth equation to estimate the expected growth rate. Then use the expected growth rate and the dividend growth model to estimate the required return on common stock. f. Use the require return on stock from the CAPM model to calculate the WACC.