You have the following information for the company a-Spirit. The beta coefficient for a-Spirit is 1.24 based on the past information. The 5-year average of 30-day T-bill rate is 3%, the average market return of (say, S&P 500 index) in the same period is 12%. Answer the following question:

a-Spirit has the following capital structure: the firm issued 5 million shares of common stock with the stock price given in c), the firm also issued 1.5 million shares of preferred stock with $2.3 preferred dividend per share, currently, a- Spirit has $90 millions in debts with interest rate as 6%. Suppose the current preferred stock price is $8 per share. The corporate tax rate is 30%. What is the (after-tax) weighted average cost of capital for a-Spirit?

Given:

b) beta: 1.24

T-bill rate: 3%

Required Rate of Return: 14.16%

Average Market Return of 12%

Valuation of a-Spirit Stock = 60.014

Current Market Price: 22$

New Rate of return: 28.26%

New Beta: 2.806

5 million shares of stock at market price of 22$

1.5 million preferred stock 2.30$ dividend per share

90$ million in debt with 6% interest rate

Corporate tax rate: 30%