Reference no: EM13934457

Bernice first examined Sea Shores Salt most recent balance sheet summarized: Assets: Working Capital $200 Plant and Equipment $360 Other assets $40 Total $600 Liabilities and Net worth Bank Loan $120 Long Term Debt $80 Preferred Stock 100 Common Stock, including retained earnings 300 Total $600 Notes: 1. At year-end 2013, Sea Shore Salt had 10 million common shares outstanding . 2. The company had also issued 1 million preferred share with book value of $100 per share. Each share receives an annual dividend of $6. Then she jotted down the following points: The company bank charged an interest rate at current market rates, and the long term debt had just been issued. Book and market values could not differ much. But preferred stock had been issued 35 years ago, when interest rates were much lower. The preferred stock, originally issued at a book value of $100 per share, was now trading for only $70 per share. The common stock traded for $40 per share. Next years earnings per share probably $2. Ten million shares of common stock are outstanding. Sea Shore Salt had traditionally paid out 50% of earnings as dividends and plowed back the rest. Earnings and dividends had grown steadily at 6% to 7% per year in line with the company's sustainable growth rate: sustainable growth rate = ROE x plowback = 4/30 x .5 = .067 Sea Shore Salts Beta had averaged .5, which made sense, Bernice thought, for a stable , steady growth business. She made a quick cost of equity calculation by using the capital asset pricing model (CAPM) With the current interest rates of about 7% and a market risk premium of 7%. CAPM cost of Equity = 7% + .5 (7%) =10.5% Calculate the following. 1. Cost of equity using dividend discount model: 2. Cost of preferred stock: 3.Cost of debt. Include both. 4. The weight of each component (% of each). 5. WACC calculation.