Defence Electronics Inc. December $31,2021.$

$($If information appears to be missing, change the row height to see it$.)$

Based in Winnipeg, Manitoba, Defence Electronics Inc. $($DEI$)$ was founded to provide security systems, facilities controls and

related services. DEl established a solid reputation for quality and the business grew thanks to strong relationships with large,

long$-$term customers in Canada and the United States.

The Research and Innovation Group $($RIG$)$ is the development side of the company. They are considering a new contract that will

strain resources for not only RIG, but the entire company. With an upfront cost of $$5\mathrm{.}0$ million, managers understand that the

cost of capital will be a key part of maintaining and improving Clearview's competitive edge. You have been asked to calculate

the company's weighted average cost of capital $($WACC$),$ based on the following information.

Over the last five years the annual dividends on the firm's common stock have grown at $6\mathrm{.}00$ percent per year and this growth is

expected to continue indefinitely. A common share dividend of $$2\mathrm{.}410$ per share was recently paid. Common shares trade at

$$44\mathrm{.}000$ per share. The company has authorized $576,000$ common shares, with $432,000$ common shares issued and outstanding.

The company has issued $109,000$ of the $138,000$ preferred shares authorized. The annual preferred share dividend is $$1\mathrm{.}050$ per

share. The latest preferred share price is $$49\mathrm{.}100$ per share.

DEI has an outstanding bond issue, payable semi$-$annually, that originally had a $25$ year maturity. The initial bond offering was

sold $8$ vears ago, at par and raised $$22\mathrm{.}50$ million dollars. $($To be specific $22,500$ bonds were sold at $$1,000$ each.$)$ The vield to

maturity, when they were issued, was $6\mathrm{.}40$ percent. Currently, the nominal yield to maturity on bonds with a similar risk is at

$6\mathrm{.}98$ percent.

The company will use its current capital structure to set target weights for debt, preferred shares and common shares. Flotation

costs are $4\mathrm{.}00$ percent for preferred shares, $6\mathrm{.}00$ percent for common shares and $5\mathrm{.}00$ percent for debt. The company's tax rate

is $45\mathrm{.}00$ percent. After$-$tax earnings for the year will be $$4\mathrm{.}00$ million and the company has a payout ratio of $45\mathrm{.}00$ percent.

Use this information to answer the questions on the following requirements