The average tax rate for the company is 25%. Its marginal tax rate is 30%. Calculate the Weighted Average Cost of Capital (WACC) for HK Express Ltd. (Workings: % in 2 d.p., e,g. xx.yy%; Final answer: % in 3 decimal places, e.g. x.yyy %) (Hint: If there are two ways for calculating Required return on common stock (RE), take the average of two RE for WACC calculation.)

Question 3 (20 marks) As a financial manager, you need to review the cost of capital for HK Express Ltd. The accounting department has provided you the latest financial data as follows: Long Term Debt: 7,000 5% coupon bonds outstanding, issued 5 years ago with 10 years left to maturity, interest paid semiannually and par value of $1,000. These bonds are currently trading at par value in the market. Common stock: 180,000 shares of common stock selling for $60 per share. The stock has a beta of 0.90 and will pay a dividend of $2.80 next year. The dividend is expected to grow by 6% per year indefinitely. 2,500 shares of 5.5% preferred stock selling at $80 per share. The par value is $100. Preferred stock: Market: A 5% return on US 90-days treasury bills, expected return on market 12%. Inflation rate is 2%