JPMorgan Chase & Co$,$ is estimating its overall cost of capital.

JPM is currently carrying a $10-$year $$1,000$ face$-$value bond with an annual coupon rate of $5\mathrm{.}6\%$ and the bond is currently sold for $$865$ and interest is paid semi$-$annually.

JPM$\text{'}$s beta is about $1\mathrm{.}27,$ the risk$-$free rate is $3\%$ and the market expected return is $13\%$;

JPM expects to pay $$2\mathrm{.}5$ next year as dividend and its stock is currently sold for $$25$ and it is expected to grow by $5\%$ annually.

JPM uses the average of CAPM and DDM for its cost of equity.

JPM$\text{'}$s preferred stock is currently sold for $$91$ and its dividend is $$8\mathrm{.}3$ per share.

JPM$\text{'}$s target capital structure is $40\%$ debt, $10\%$ preferred stock, and $50\%$ common equity.

JPM$\text{'}$s tax rate is $25\%$;

JPM adds $3\%$ to its WACC if a project is riskier than average and deducts $3\%$ from its WACC if a project is less risky than average.

Show you answer for each question after the question mark.

a$)$ What is the company's cost of bond?

b$)$ What is the company's cost of preferred stock?

c$)$ What is the company's cost of equity?

d$)$ What is the company's weighted average cost of capital?

e$)$ There are two average risk projects that JPM is considering: Project A with expected return of $8\%$ and Project B with the expected rate of return of $12\mathrm{.}2\%.$ Do you choose any of these projects? Why?

f$)$ Suppose now Project A is more risking than average. What should the firm use as its cost of capital for A$?$ Given this, should the firm still choose or reject project A$?$