Suppose the stock price of the company is $50, there are 3 million shares of stock, the firm has $25 million of preferred stock. In consultation with investment bankers, the company expects to be able to issue new debt at par with a coupon rate of 20% with a marginal tax rate of 50%. The cost of preferred stock is 9% and the cost of common equity is 14%. The total value of the investment is $250 M.

1) Could you describe the company? Do you think it is a public or private company? Why?

2) What is the cost of debt?

3) What is the value of debt?

4) What is the value of common equity?

5) What is the value of preferred stock?

6) What is the weight of common equity?

7) What is the weight of preferred stock?

8) What is the weight of debt?

9) What is the WACC?