Reference no: EM133118816

1. You have the following information for Horizon Manufacturing Corp.:

• 20 million shares of common stock outstanding. The common stock currently sells for $12 per share and has a beta of 2.5
• 500,000 shares of 9% preferred stock outstanding (dividend payments equal 9% of $100 par). The preferred stock currently sells for $72 per share.
• 100,000 bonds with par value for each bond is $1,000. The yield to maturity of 10% per annum and the coupon rate is 16% per annum.
• Tax rate is 22%.
• The market risk premium (rm-r{RF}) is 9%.
• T-bills are yielding 3%.

Suppose that the you are provided with the following capital structure weights: 60% for equity, 30% for debt, and 10% for preferred stock. Write out your equation(s) clearly and show your input(s).

a) Determine the cost of equity (common stock).

b) Determine the cost of preferred stock.

c) Determine the cost of debt.

d) Determine the weighted average cost of capital.