On January 1, the total market value of Apple was $60 million. During the year, the company plans to raise and invest $30 million in new projects. The firms present capital structure composed of debts, preferred stocks and common equity is considered to be optimal. Debt (bonds) to common equity ratio is 0.5 (e.g. Debt is 5 and Common equity is 10). Preferred stock to common equity ratio is 1.5 (e.g. Preferred stock is 15 and common equity is 10). Assume that Tax rate is 40%.

1. New bonds will have 8% coupon rate and be sold at $1050. Face value is $1000. Its maturity is 4 years. Coupon is paid annually. Estimate cost of debt (Yield to Maturity) of Apple

2. New preferred stock will be sold at $40. Its preferred stock dividend is $4. Estimate cost of preferred stock

3.New common equity will be sold at $30. Its dividend will be $3 (D1). The dividend payment is expected to grow by 5% every year forever. Estimate cost of equity.

4. Basing on information 1),2) and 3), estimate after tax weighted average cost of capitals (WACC) of Apple. Then explain why WACC is important and how to use it.