Problem 1: Spreadsheet tab WACC. You are tasked with determining Ferris Ltds weighted average cost of capital based on the following information.

Long-term debt consists of 12-year, noncallable bonds. The bonds pay interest semiannually, have a coupon rate of 10%, and currently sell for $1,128

There are 80,000 bonds outstanding.

Ferris stock pays an annual dividend of $4 and currently sells for $42. If new preferred stock is sold, Ferris will incur a 6% flotation cost to sell it.

There are 160,000 preferred shares outstanding.

Ferris has 4 million shares of common stock outstanding and the current price is $36. Next years dividend is expected to be $3.50 and dividends are expected to grow at a constant rate of 4%. If Ferris issues new common stock (there is not enough retained earnings so they will issue new stock in the near future), they will incur a flotation cost of 5%.

Ferris tax rate is 30%