Suppose firm XYZ has the following balance sheet figures:

	Book value
Bonds: 8% coupon rate, annual coupons, 10 years to maturity	$1.0 million
Preferred shares: 10% dividend rate	$1.0 million
Common equity: common shares 100,000 shares issued at $15/share	$1.5 million
Retained earnings	$0.5 million
Total	$4.0 million

Assume the marginal tax rate is 40%. The market interest rate on similar risk 10-year bonds is 6%. Similar risk preferred shares are providing yields of 8%, and common share price is currently $25.

1. Find the market value proportions of bonds, preferred shares, and common equity in total asset value.
2. Assume that the firm paid a dividend per share last year of $1, which is expected to grow at 5% per year indefinitely. What is the cost of common equity? What is the firms WACC?