Problem $3$: Funding Choices

A firm has the following funding choices to finance its assets:

$$ Issue one$-$year zero coupon bonds with face value $$1,000$ that will sell for $$892\mathrm{.}8$ each.

$$ Sell preferred stocks promising a dividend of $$10$ for $$60$ each.

$$ Issue common shares

The firm$$s tax rate is $20\%,$ the risk free rate is equal to $8\%,$ the expected market return is $16\%$ and the firm$$s beta is equal to $1\mathrm{.}6.$

$1.$ What is the weighted$-$average cost of capital if the firm uses the three funding sources equally?

$2.$ Suppose that the firm decides not to issue preferred stocks. What is the weighted$-$average

cost of capital if the firm$$s debt$-$to$-$equity ratio is equal to $1?$

$3.$ Suppose that the firm decides not to issue preferred stocks. What is the weighted$-$average

cost of capital if the firm$$s debt$-$to$-$equity ratio is equal to $2?$