Question $16$

Kinge$-$Cheese Incorporated has $6,000,000$ shares of common stock outstanding. The company also has an issue of $350,000$ preference shares.outstanding. Each preference share has a par value of $$100$ and pays a $4$ percent dividend.

Kinge$-$Cheese Incorporated has one$-$hundred and twenty thousan$$t $(120,000)$ bonds with a semi$-$ annual coupon of $4\mathrm{.}8$ percent outstanding, each with a par value of $$1,000.$

The common stock currently sell for $$60$ per and has a beta of $1\mathrm{.}05,$ the preferred stock currently

sells for $$106$ per share, and the bonds have $20$ years to maturity and sell for $102$ percent of par.

The market risk premium is $7\mathrm{.}5$ percent, Treasury bills are yielding $2\mathrm{.}4$ percent, and the company's tax rate is $22$ percent.

Required:

What is the firm's cost of common equity? $(3$ marks$)$

What is the firm's cost of preferred equity? $(2$ marks$)$

What is the firm's after$-$tax cost of debt? $(4$ marks$)$

What is the market value of each element in the firm's capital structure? $(3$ marks$)$

What is Kinge$-$Cheese Inc.$$s weighted average cost of capital? $(6$ marks$)$

Briefly discuss one advantage of using the SML approach to finding the cost of equity

capital? $(2$ marks$)$