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Pakistan Telecommunication Limited (PTCL) has the following capital structure, which it considers to be optimal: PTCL has only long-term debt = 40%, preferred stock = 5%, and common stock = 55%. PTCL's tax rate is 40%, and investors expect earnings and dividends to grow at a constant rate of 7.5% in the future. PTCL paid a dividend of Rs. 8.5 per share last year, and its stock currently sells at a price of Rs. 175 per share. Ten-year Treasury bonds yield (risk free rate) is 4.5%, the market risk premium is 4%, and PTCL's beta is 1.25. The following terms would apply to new security offerings.
Preferred: New preferred stock could be sold to the public at a price of Rs.100 per share, with a dividend of Rs. 5. Flotation costs of Rs. 2 per share would be incurred.
Debt: Debt could be sold at an interest rate of 11.5%.
Required:
a) Calculate costs of debt
b) Calculate costs preferred stock
c) Calculate costs common stock
d) Calculate weighted average cost of capital
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