Reference no: EM133011651

Sunshine is estimating its WACC. Its target capital structure is 30 percent debt, 10 percent preferred stock, and 60 percent common equity. Its bonds have an 11 percent coupon, paid semiannually, a current maturity of 25 years, and sell for $1050. The firm could sell, at par, $100 preferred stock which pays 10% annual dividend, with flotation costs of 3 percent. Sunshine's beta is 1.3, the risk-free rate is 10 percent, and the market risk premium is 5 percent. Sunshine constant-growth firm and it just paid a dividend of $1.20, sells for $20.00 per share, and has a growth rate of 4 percent. The firm's policy is to use a risk premium of 4 percentage points when using the bond-yield-plus- risk-premium method to find rs. The firm's marginal tax rate is 38 percent.

Problem 1. What is the component cost of debt?

Problem 2. What is the cost of preferred stock?

Problem 3. What is the cost of common stock using the CAPM approach?

Problem 4. What is the cost of common stock using the DCF approach

Problem 5. What is cost of common stock using the bond-yield-plus-risk-premium approach?

Problem 6. What is the firm's WACC (assuming CAPM to find out cost of equity)?