Once we have weights and the costs of the different sources of capital, we calculate the weighted average cost of capital.

A Financial Analyst with SOTRAGUI company would like ro estimate SOTRAGUI$$s cost of capital. He has gathered the following capital structure information using SOTRAGUI$$s most recent balance sheet:

Current portion of LTD $$100$

$8\%$ bonds $$900$

Total interest$-$bearing debt $$1000$

Preferred stock, $1$ million $$100$ par value $7\%$ perpetual preferred shares outstanding $$100$

Common stock, $50$ million shares outstanding $$5$

Additional paid$-$in capital $$20$

Retained earning $$1400$

Total shareholders$$ equity $$1525$

Total liabilities and Equity $$2625$

Other information that the analyst has gathered:

$-$ SOTRAGUI tax rate is $35\%$

$-$ The bonds are due in $10$ years, pay interest semi$-$annually, and have a current yield to maturity of $6\%.$

$-$ The preferred stock has a current market value of $$110$ per share.

$-$ The common stock has a current market value of $$80$ per share

$-$ The beta on SOTRAGUI$$s stock is $1\mathrm{.}2$

$-$ The expected market risk premium is $4\%$

$-$ The expected risk$-$free rate of interest is $2\%$

$-$ The current dividend on SOTRAGUI$$s common stock is $ $4$ per share, and this dividend is expected to grow at a rate of $3\%$ per year.

$-$ SOTRAGUI has the following cash flows: $2018$ $$205$ million, $2019$ $$100$ million, $2020$ $$150$ million, $2021$ $$300$ million and $2022$ $$500$ million.

$-$ In $2021$ SOTRAGUI has a growth rate of $3\%$ indefinitely. $-$ Suppose that SOTRAGUI total debt is $$100$ million.

a$)$ Calculate the WACC of SOTRAGUI.

b$)$ Calculate SOTRAGUI value.

c$)$ Calculate SOTRAGUI FCFE

d$)$ Calculate SOTRAGUI share price assuming it has $5$ million shares outstanding.