LCI has the following capital structure, which it considers to be optimal: debt 25%, preferred stock 15%

Question:

LCI has the following capital structure, which it considers to be optimal: debt 25%, preferred stock 15% and 60%. LCI’s tax rate is 40%, and investors expect earnings and dividends to grow at a constant rate of 6% in the future. LCI paid a of $3.70 per share last year (Do) and its stock is currently selling at $60 share. Ten year Treasury bonds yield 6%, the market risk premium is 5%, and LCI’s beta is 1.3. The following terms would apply to all new security offerings:
Preferred: New preferred could be sold to the public at a price of $100 share, with a of $9. Flotation costs of $5 share would be incurred. Debt: Debt could be at an interest rate of 9%.Common: New common equity will be raised only by retained earnings.
a. Find the component cost of debt, preferred stock and equity.
b. What is the WACC?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...