Question $23$

Chanel Inc. has asked you to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average

cost is to be measured by using the following weights: $20\%$ long$-$term debt, $40\%$ preferred stock, and $40\%$ common stock equity $($retained earnings,

new common stock, or both$).$ The firm's tax rate is $35\%.$

Debt: The firm can sell for $$900$ a $10-$year, $$1,000-$par$-$value bond paying annual interest at a $10\%$ coupon rate. A flotation cost of $$25$ is required for

the bonds.

Preferred stock: Preferred stock can be sold for $$90.$ An additional fee of $$5$ per share must be paid to the underwriters. The preferred stock gives

dividends of $$9$

Common stock: The firm's common stock is currently selling for $$50$ per share. Dividends are expected to grow at $3\%$ and the dividend $($D$1)$

expected to be paid at the end of the coming year $(2021)$ is $$5.$

a$.$ Calculate the after$-$tax cost of debt.

b$.$ Calculate the cost of preferred stock.

c$.$ Calculate the cost of common stock.

d$.$ Calculate the WACC.

Question $24$

A firm is considering two projects, each with an initial investment of $$500,000.$ The company's board of directors has set a maximum $3-$year payback requirement. The cash inflows

associated with the two projects are shown in the following table. The cost of capital is $12\%.$