Q2)

a) Assume that BMW has preferred stock outstanding with par/face value of $1000, dividend per share of $18.30, and a current market value of $800 per share. What is its cost of preferred equity?

b) Suppose the market rate of return is 10% and the risk free interest rate is 2%.

BMW has a beta of 3. What is the cost of equity according to the CAPM formula?

c) Subsequently, If BMW borrowed 1250 Million Long term debt instruments at a rate of 6%, invested 150 Million in preferred equity and 1000 Million in Common stock; what will be its cost of capital (WACC) given that the firm is taxed at a corporate level of 37.5%?