you are employed by Stetson, a fortune 500 firm that is a major producer of pharmaceuticals. You are on the corporate staff as an assistant to the vice president of finance. This is a position with high visibility in the opportunity for rapid advancement, providing you make the right decisions. Your buck has asked you to estimate the weighted average cost of capital for the company. Following is the balance sheet and information about Stetson.

Assets Amount

Current assets $48,000,000

Bet plant, property, and equipment $97,000,000

Total assets $145,000,000

Liabilities & equity

Accounts payable $4,000,000

Accruals $5,000,000

Current liabilities $9,000,000

Notes Payable $6,000,000

Long term debt (50,000 bonds/1,000 face value) $50,000,000

Total Liabilities $65,000,000

Common stock (6,000,000 shares) $30,000,000

Retained earnings $50,000,000

Total shareholders equity $80,000,000

Total liabilities & shareholders equity $145,000,000

The notes payable our bank loans and the interest rate on this day is 6%, the same as the rate on the new bank loans. these bank loans are not used for seasonal financing but instead are part of the companies permanent capital structure.

Long term bonds consist of 50,000 bonds each with the par value at $1000 and an annual coupon rate of 7.5% in the 20 year maturity. You check the Wall Street Journal and see that the going interest rate a new long-term date, RD is 9% and this is the present yield to maturity on these bonds.

The better for your company is approximately equal to 1.12. The yield on a 20 year treasury bond is 4%. The expected return on the stock market is 10.5%. The common stock sales at a price of $30 per share. Stetson is in the 40% far bracket

a. using the CAPM approach, what is the best estimate of the cost for equity for Stetson?

b. what is the market price for bonds?

c. what is the market value capital structure for this firm?

d. using the weights from parts C what is the company's weight average cost of capital?