Raw Hill Publishing wants to calculate its cost of capital. The company has collected the following information:

• The company wants to maintain is current capital structure, which is 40% equity, 10% preferred stock and 50% debt.
• The firm has marginal tax rate of 34%.
• The firm's preferred stock pays an annual dividend of $4.6 forever, and each share is currently worth $135.26.
• The firm has one bond outstanding with a coupon rate of 9%, paid semiannually, 12 years to maturity, a face value of $1,000, and a current price of $1,160.58.
• The firm uses a risk premium of 3% for the bond-yield-plus-risk-premium approach.
• New bonds and preferred stock would be issued by private placement, largely eliminating flotation costs.
• The equity beta is 0.4, the yield on Treasury bonds is is 3.1% and the expected return on the market portfolio is 6%.
• The current stock price is $35.88. The firm has just paid an annual dividend of $1.38, which is expected to grow by 4% per year. It costs 7% of the amount raised to issue new common stock.

What is the (pre-tax) cost of debt?

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Part 2

What is the cost of preferred stock?

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Part 3

What is the cost of equity from retained earnings, using the CAPM?

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Part 4

What is the cost of equity from retained earnings, using the bond yield plus risk premium approach?

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Part 5

What is the cost of equity from retained earnings, using the constant growth model?

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Part 6

What is your best guess for the cost of equity from retained earnings, using the midpoint of the range?

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Part 7

What is the company's weighted average cost of capital, assuming all equity comes from retained earnings?

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Part 8

What is the cost of newly issued common stock, using the constant growth model?

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Part 9

What should be the flotation cost adjustment?

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Part 10

What is your best guess for the cost of equity, including flotation costs, using the midpoint of the range?

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Part 11

What is the company's weighted average cost of capital, assuming all equity comes from newly issued stock?