What is Apple cost of common equity if we use the bond yield plus risk premium method?

	A.	5.54%
	B.	6.63%
	C.	8.17%
	D.	8.63%

Suppose Apple wants to raise capital to start a new project. The CEO asks you to calculate their weighted average cost of capital. He gives you these facts.

Tax rate = 22%.

Apple has the following bonds all have a face value of $1,000:

5-year, 4% coupon, semiannual payment non-callable bonds with a price of $1,005.

20 year, 6.5% coupon semiannual payment callable bonds with a price of $1,015.

And 20 year, 6.7% coupon semiannual payment non-callable bonds with a price of $1,008. New bonds will be privately placed with no flotation cost.

Apple has preferred stock that sells for $115.00. It pays an annual dividend of $8.23.

Their common stock sells for $52.50. The annual dividend is $2.10 and the dividend growth rate is 3.4% a year. The stock has a Beta of .87. The risk free rate is .5% and the market risk premium is 5.9%.

Apple considers their bond-Yield Risk Premium to be 2%.

Apple currently has 40% of their capital coming from debt, 16% from preferred stock and 54% from common equity, however their target is to have 45% from debt, 15% from preferred stock and 40% from common equity.