Longstreet Communications Inc. (LCI) has the following capital structure, which it considers to be optimal: debt = 20%, preferred stock = 20%, and common equity = 40%. LCI's tax rate is 25%, and investors expect earnings and dividends to grow at a constant rate of 5% in the future. LCI paid a dividend of $1.00 per share last year (Do) and its stock currently sells at a price of $10.50 per share. Ten-year Treasury bonds yield 5%, the market risk premium is 5%, and LCI's beta is 2.0. The following terms would apply to new security offerings. Debt: New debt could be sold at par with a coupon rate of 10%. New debt with a face value of $1,000 will mature in 10 years. Interest is paid semiannually. Ignore flotation costs. Preferred stock: New preferred stock could be sold to the public at a price of $100 per share, with a dividend of $9.50. Flotation cost of $5 per share would be incurred. Common equity: New common equity can be raised either by retaining earnings or by issuing new common stock. The flotation cost for new common stock issuance is 10%. Use the judgmental risk premium of 5% for the Bond-Yield-Plus-Risk-Premium method. What is LCI's after-tax cost of debt? 01) 5.40% 2) 6.50% 3) 7.50% 4) 9.00% 5) 10.00% What is LCI's cost of preferred stock considering flotation costs? 1) 8.00% 2) 8.50% 3) 9.47% 4) 9.74% 5) 10.00% What is LCI's cost of internal equity using the capital asset pricing model (CAPM) approach? 1) 9.5% 2) 10.0% O 3) 12.5% O4) 13.5% 5) 15.0% What is the firm's cost of internal equity using the discounted cash flow (DCF) approach ignoring flotation costs? 1) 9.5% 2) 10.0% 3) 12.5% 4) 13.5% 5) 15.0% What is LCI's cost of internal equity using the bond-yield-plus-risk-premium approach? 1) 9.5% 2) 10.0% 3) 12.5% 4) 13.5% 5) 15.0% What is LCI's cost of external equity using the discounted cash flow (DCF) approach considering flotation costs? 1) 16.11% 2) 15.50% 3) 15.00% 4) 13.50% 5) 12.50% What is LCI's WACC when common equity is raised by retaining earnings? 1) 10.27% 2) 10.61% 3) 11.15% 4) 11.56% 5) 12.50% What is LCI's WACC when common equity is raised by issuing new common stock? 1) 13.17% O2) 12.50% O 3) 11.56% 4) 10.61% 5) 10.27%