Weighted Average Cost of Capital (WACC) Practice 1. A firm's 8% coupon bonds have 10 years left until maturity. They are selling for $855.20. Find the pre-and post-tax cost of debt for this firm. The firm faces a 40% tax rate. (10.4%; 6.24%) 2, A firm has 6% perpetual preferred stock outstanding that has a face value of $50. Each share of this preferred is selling for $24.10. Calculate the cost of preferred stock financing for this firm. (12.45%) 3. A firm's common stock is currently selling for $42. Its just paid out a dividend of $3 per share. Dividends are expected to grow at a constant rate of 5.5% for the foreseeable future. Find the cost of common equity financing for this firm. (13.04%) 4. Suppose that the information in questions 1-3 pertains to the same firm, and this firm finances itself with 50% debt, 15% preferred, and 35% with common equity. Calculate its cost of capital. (9.55%) 5. A firm's common stock is currently selling for $30.44 The firm is expected to pay a dividend of $1.95 a year from now. Its dividends have an expected constant growth rate of 4.5%. Find the firm's "market capitalization rate" (required rate on common stock). (10.91%) 6. A firm has preferred stock outstanding that has a dividend rate of 7%, and a face value of $50. This preferred stock does not have a maturity date. If the stock is selling for $42.15, find the required return on the company's preferred stock. (8396) 7, A firm has 8% coupon bonds outstanding that have 12 years left until maturity. The bonds are currently selling for $1078.54. Find the yield to maturity on the firm's bonds. (7.01%) 8. Based on the answers to questions 5, 6 and 7, estimate the firm's cost of capital. Assume that the firm finances itself with 50% debt, 45% common equity, and 5% preferred equity, and that the firm' faces a marginal tax rate of 40%. (7.43%)