using the data below, calculate the cost for each component of capital on the right-hand side of the balance sheet. Briefly explain each component cost and calculation. Given the target structure for this firm, is the market value weighting consistent? Based upon the market value weighting, what is the overall WACC? Is this rate applicable to all investments the firm will make? What is the implication of your answer for the managements ability to create value if the average ROIC for the firm is 13 percent? Be sure to provide the appropriate explanation for your answer.

The current price of a 20-year, 10-percent coupon bond issued five years ago is $985.00. The par value of the bond is $1,000. It pays interest annually with five years left to maturity.

You have 9.5 percent $50 par value preferred equity and a market price of $45 per share.

You have common stock with a beta of 1.4, a risk-free rate of 5 percent and a market risk premium of 6 percent. Your shares recently paid a $3.00 dividend (D₀). Your dividend growth rate is 5 percent and your market price is presently $37.50 per share. You are using retained earnings only.

The tax rate for this firm is 25%

The firms target capital structure is debt 25%, preferred equity 5% and common equity 70%.

However, the market values are as follows:

Source of Capital	Issued Units
LT Debt (Bonds)	1,000,000 bonds outstanding
Preferred Shares	4,250,000 shares outstanding
Common Shares	75,000,000 shares outstanding

Assume flotation costs on new preferred stock is 10 percent.