You have been asked to estimate the cost of capital for the CAT Corporation. The company has 4 million shares and 125,000 bonds outstanding at a par value of $1,000. In addition, it has $20 million in short-term debt from its bank. The target capital structure ratio is 55% equity, 40% long-term debt, and 5% short-term debt. The current capital structure has temporarily moved slightly away from the target ratio.The company's shares currently trade at $50 with a beta of 1.03. The book value of the shares is $16. The annual coupon on the bond is 9%, they trade at 108 percent of par, and they will mature in 10 years. Interest on the short-term debt is 3.5%. The current yield on a ten-year government bond is 5.2%. The market risk premium is 5% The corporate tax rate applicablle is expeted to be 35%.Based on these data, calculate the cost of capital for the CAT Corporation.

Calculate and Show work:

1. Cost of Debt (KD) - before tax

Kd =

2. Cost of Equity (KE)

KE =

3. Cost of short-term debt (KS) - before tax

KS=

4. Weighted-average cost of capital (WACC)

(KD (1-T) Wd) + (KE (WE)) + (KS (1-T) WS)