Pickerington Communications Inc. (PCI) has developed a powerful server that would be used for the companys internet activities. The company has the following capital structure, which is considered optimal. Debt is 30%, preferred stock is 10%, and common stock is 60%. PCIs tax rate is 25%, and investors expect earnings and dividends to grow at a constant rate of 6% in the future. The company paid a dividend of $3.70 per share last year (D0), and its stock currently sells at a price of $60 per share. Ten-year Treasury bonds yield 6%, the market risk premium is 5%, and PCIs beta is 1.3. The following information is available for managerial finance analysis: Preferred stock: New preferred stock could be sold to the public at a price of $100 per share, with a dividend of $9. Flotation costs per share is $5. Debt: The companys long-term debt has a yield to maturity of 9%. Common stock: All common stock will be raised internally by reinvesting earnings.

1. Calculate the companys after-tax cost of debt.

2. Calculate the cost of preferred stock.

3. Calculate the companys cost of common stock using both CAPM method and the dividend growth method.

4. What is the companys weighted average cost of capital (WACC)?

5. The companys management is meeting today to discuss ways to minimize its cost of capital. Identify three factors that the management of PCI cannot control and three factors that it can use to control its cost of capital.