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Calculate the before tax cost of debt

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Question - A company currently has $18,000,000 in bonds. The 5% semi-annual coupon bonds have a face value of $1000, and 7 years to maturity. The bonds are currently selling at a quoted price of 96. The company also has 22,000 shares of 6% preferred stock outstanding currently selling at $99 per share with a par value of $100. In addition, the company has 420,000 common shares outstanding selling for $68 per share with a book value of $30. The firm has a marginal tax rate of 40%, a beta of 1.4. The market risk premium is 5% and the risk-free rate is 4%.

Required -

A) Calculate the before tax cost of debt.

B) Calculate the cost of preferred shares.

C) Calculate the cost of common equity.

D) What are the capital structure weights useful to compute the WACC?

E) Calculate the firm's WACC.

Reference no: EM133147576

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