IN MA MODO ABBCC AaBbc 1 32 QUESTION 2 (12 POINTS) RC BHD is estimating its WACC. Its target capital structure is 30 percent debt, 30 percent preferred stock and 40 percent common equity. Its bonds have a 10 percent coupon paid semi- annually, a current maturity of 25 years, and sell for RM 1,000. The firm could sell, at par, RM 100 preferred stock which pays a 10 percent annual dividend, but flotation costs of 6 percent would be incurred. RC's beta is 1.5, the risk-free rate is 8 percent, and the market risk premium is 4 percent. RC is a constant-growth fim which just paid a dividend of RM2.00, sells for RM26.50 per share, and has a growth rate of 6 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. The firm's marginal tax rate is 30 percent. a. What is RC's component cost of debt? (2 points) b. What is RC's cost of preferred stock? (2 points) c. What is RCs cost of common stock (r.) using the CAPM approach? (2 points) d. What is the firm's cost of common stock (r.) using the DCF approach? (2 points) e. What is RC's cost of common stock using the bond-yield-plus-risk-premium approach? (2 points) f. What is RC's WACC? (2 points)