Jupiter Ltd. wants to calculate its weighted average cost of capital (WACC). The companys financial manager has collected the following information: The company recently issued a long-term bond at $1,000 of par. It pays $40 coupon interest every six months. The bond is still traded at par value in the market. Long-term Treasury bond yield is 6% and short-term Treasury bill yield is 4%. S&P 500 indexs expected return is 10%. The estimate of beta for the company is 1.3. This estimate is expected to remain stable in the future as well. The companys stock price is $32 per share and $30 per share for the common stock and preferred stock, respectively. The company recently paid a common stock dividend of $2 per share and a preferred stock dividend of $2.5 per share. The company pays a 10% and 7% flotation costs whenever it issues new common stock and preferred stock, respectively. The companys common stock dividend is expected to grow at a constant rate of 6% while the preferred stock dividend is fixed. The companys optimal capital structure is 70% common equity, 5% preferred stock and 25% debt. The companys tax rate is 40%. The company anticipates issuing new common stocks during the upcoming year.

d. What is Jupiters cost of preferred stock after taking the flotation costs into consideration? (2 marks)

e. What is the best estimate of Jupiters WACC? (2 marks)