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Lord's Corporation has 8 . 5 million shares of common stock outstanding, 2 5 0 , 0 0 0 shares of 5 percent preferred stock

Lord's Corporation has 8.5 million shares of common stock outstanding, 250,000 shares of 5 percent preferred stock outstanding, and 135,000 bonds outstanding, with a semi- annual coupon of 7.5 percent and a par value of $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.25, the preferred stock currently sells for $91 per share, and the bonds have 15 years to maturity and sell f o r 114 percent of par. The market risk premium is 7.5 percent, T-bills are yielding 4 percent, and Lord's tax rate is 35 percent. Required: What is the firm's cost of equity? (3 marks) What is the firm's after-tax cost of debt? (4 marks) What is the market value for each element in the firm's capital structure? (6 marks) If Lord's Corporation is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows (7 marks)

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