You have the following information about ABC Corp: Asset Bonds Preferred Stock Common Stock Constant growth on common stock YTM on bonds Beta Treasury bond yield Book Value $25,000,000 $8,000,000 $12,500,000 Price of common stock Tax rate Coupon rate on bonds (semi-annual coupon payments, but recall that coupon rates are ALWAYS stated on an annual basis) Risk prem. stocks over bonds Expected market return (km) Expected Common Dividend (D1) Number of pref. shares Per share dividend on preferred Step 1) solve for market weights for each type of capital Wdebt = Wpref= Wcom = Step 2) solve for the after-tax cost of debt Kdebt = Step 3) solve for the cost of preferred stock Kpref= Market Value $30,000,000 $10,000,000 $60,000,000 4.20% 6.50% 1.3 4% $45 20% 8% 6% 11% $3.00 100,000 $9.50