You are currently employed as a financial analyst for Magna Bhd. a conglomerate with its corporate office in Kuala Lumpur, Malaysia and operations all over Asia. You report directly to Mr. Jerry Wong the chief financial officer.

The company is considering a major expansion programme that has been proposed by the companys information technology group. Before proceeding with the expansion, the company must estimate its cost of capital. Mr. Wong has asked you to estimate Magnas cost of capital. Mr. Wong has provided you with the following data, which he believes may be relevant to your task.

1. The firms tax rate is 25%.

2. The current price of Magnas $1,000 par value, 11% coupon, semi-annual payment, non-callable bonds with 20 years remaining to maturity is $1,175. The company does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost.

3. The current price of the firms 10%, $100.00 par value perpetual preferred stock is

$110.20.

4. Magnas common stock is currently selling for $50.00 per share. Its last dividend (D0) was $4.19, and dividends are expected to grow at a constant rate of 5% in the foreseeable future. Magnas beta is 1.6, the yield on Treasury bonds is 6%, and the market risk premium is estimated to be 5%.

5. Magnas target capital structure is 30% debt, 20% preferred stock, and 50% common equity.

REQUIRED:-

QUESTION: What is the before-tax cost of debt, firms cost of preferred stock, cost of common equity using the CAPM and the DCF approach, final estimate for the cost of common equity, weighted average cost of capital of Magnas?