1. The cost of debt is 2%. The firms tax rate is 25 %.
2. The current price for preferred shares in the market is $150 and the perpetual annual dividend is $40.
3. Harry Morriss common shares are currently selling at $40 per share, its last dividend (D0) was $6, and dividends are expected to grow at a constant rate of 3 % in the foreseeable future.
4. Harry Morriss capital structure is 50 % long-term debt, 25 % preferred stock and 25 % common stock.

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Requirements:

1. Why does cost of capital play an important role in decision-making?
2. Mention the two ways that companies can raise common equity?
3. Determine the Cost of Preferred Stock rp.
4. Determine the cost of Common Stock rs.
5. Calculate the WACC.

6. When it comes to the return on invested capital and cost of capital, when should a company accept or reject a project