Q3. Shoon Steel is a market leader in steel production. Since inception, the company has remained profitable. Quite recently capital structure of the firms in the industry are shifted to more equity oriented as overall interest rates are increased rapidly. The management is concerned about reputational risk and profitability of the company as current capital structure rely heavily to debt relative to other firms in the industry. The corporate tax rate is 37%. Balance Sheet of Shoon Steel is as under: Current Assets Fixed Assets $45,000,000 75,000,000 $15,000,000 45,000,000 Notes Payable Long term Debt Common Equity: Common Stock (1.5m shares) Retained Earnings Total Liabilities & Equity 1,500,000 58.500.000 S120,000,000 Total Assets $120.000.000 The interest rate on notes payable is 12%, the same as new bank loans. The long term debt consists of 45,000 bonds with 20 years to maturity. Each bond has a par value of $1,000 and an annual coupon rate of 7%. The long term debt is traded at 90 % of the par value. The common stock is trading at $20 per share, the company just paid a dividend of $1.5 a share and it is expected that dividend and earning would continue to grow at a constant rate of 5% in the future. Page 3 of 5 Required: a. What is the market value of the firm's long term debt, equity and notes payable b. What is the market value weight of common equity, notes payable (short term debt) and long term debt in the firm's capital structure if short-term debt is included? c. What is cost of short term debt, long term debt and equity. c. What is the weighted average cost of capital (WACC)