The company owns 2000 zero coupon bonds. Each zero coupon bond has a face value of $1,000, will mature in 7 years and is currently priced at 60% of its face value. The company has 500,000 shares of common stock outstanding, and each share currently trades for $20. You have decided to use the MEDAF model to calculate the cost of equity. The risk-free rate is 5% and the market risk premium is 15%. The company's beta is 3 and the expected market return is 20%. The company also owns 200,000 preferred shares. Each share trades for $15 and the constant annual preferred dividend per share is $1.50. Finally, the company is subject to a tax rate of 40%.