The Last Assignment (LA) Hotel has 5 million shares of common stock outstanding. The stock currently sells for $18 per share. The hotel also holds $20 million value of preferred stock, which has an approximate required return of 6 percent. The hotels bond is publicly traded and was recently quoted at $1525.43 (for face value of $1000). It has a total face value of $60 million and a maturity of 15 years. The coupon rate of the bond is 10% with the coupons paid quarterly. The risk-free rate in the market is 3 percent, and the expected market rate of return in hotel industry is 11 percent. Youve estimated that LA Hotel has a beta of 1.5 and the corporate tax rate is 21 percent.

1. What is the required rate of return for common equity of LA Hotel?

2. What is the required rate of return for preferred stocks of LA Hotel?

3. What is the required rate of return for debt of LA Hotel?

If we would like to calculate WACC of LA Hotel, 4. What is the weight of common equity?

5. What is the weight of preferred stock?

6. What is the weight of debt?

7. Calculate WACC of LA Hotel.

8. If an investment offers 9% return, accordign to WACC, should LA Hotel accept the investment?

9. If the aforementioned investment has a beta of 0.3, would you consider the previous decision reasonable?