YRPR has decided to build a new production facility and will have to seek additional financing. As a member of the team which is evaluating YRPRs alternatives, you have been asked to reconfirm the firms weighted average cost of capital figure. The following information is available to assist you in your task:

The shareholders equity section from YRPRs most recent balance sheet is as follows:

Long-term debt $14,250,000

Preferred shares 9,000,000

Common shares 9,765,000

Retained earnings 27,000,000

There are 120,000 preferred shares outstanding (par value $75), which pay an annual dividend of $6.00 per share and currently trading at $80.

YRPRs 500,000 common shares are currently trading at $89. The firm paid a dividend of $9.25 per share. A current 10-year treasury bond has a return of 5% and the market risk premium is 9%. The company's beta 1.20

YRPRs long-term debt consists of single issue which carries a 12% coupon rate (paid semi-annually) and has 10 years remaining until maturity. YRPR has been advised in order to issue new 10-year debt at face value, it will have to offer a 13% coupon.

Floatation costs will be 3% before-tax on debt and 2% after tax on preferred shares. There are no flotation costs on new common shares. The firms tax rate is 35%

Required:

Calculate the current cost of debt, after tax (enter as %):

Calculate the current of debt, after tax and floatation cost (enter as %):

What is the market price of the bond:

Calculate the market value of the debt:

Calculate the current cost to preferred shares after floataton costs (enter as %):

Calculate the current market value of preferred shares:

Calculate the current cost of equity (enter as %):

Calculate the current market value of equity:

What is the weighted average cost of capital for YRPR?

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