QUESTION 26

Miami Publishing Company is beginning the process of calculating its weighted average cost of capital (WACC). Their research has shown that they can raise capital under the following conditions:

1. Bonds can be sold with a par value of $1,000 and a coupon rate of 12% per year, paid semiannually. The bonds will be non-callable with 15 years to maturity. The current market price for identical bonds is $975.

2. Miami Publishing does not issue preferred stock.

3. Common stock could be sold. The most recent semiannual dividend paid by Miami was D₀ = $3.75 per share. The companys dividends are expected to grow at a rate of 6% per year for the foreseeable future. The current price of Miami common stock is $175 per share.

Based on the information above, calculate the following:

A. the cost of debt from corporate bonds (Rd)

B. the cost of preferred stock (Rps)

C. the cost of common equity (Rce).