Shock Inc. has a target capital structure consisting of 30% debt, 5% preferred stock, and 65% common equity. Shock has 20-year, 7.25% semiannual coupon bonds that are selling for $875. Shocks preferred stock sells for $95 and pays a 9% dividend on a $100 par value. Shock is a constant growth firm with a growth rate of 4% and just paid a dividend of $2.35 on its common stock that is currently selling for $30.00 per share. The beta is 1.25 and the risk-free rate is 5.25%. The required return on the stock market is 11.50%. The firms tax rate is 25%.

a. What is Shocks component after-tax component cost of debt?

b. What is Shocks component cost of preferred stock?

c. What is Shocks component cost of common equity based on the CAPM?

d. What is Shocks component cost of common equity based on the DCF model?

e. What is the WACC for Shocks assuming the firm use an average component cost of equity given the

two methods used?