need help with question 2 which has part a-g

please use excel format provided

question 1 is complete

IT. Comprehensive Cost of Capital Problem. The Triple Seven Systems, Inc. (TSS), is starting its planning process for next year. Jack Tripper, the firm's CFO, calculates the weighted cost of capital each year to be used as a discount rate in the NPV analysis. You have been asked to help Mr. Tipper to compute the firm's cost of capital. You have collected the following data to do the job: TSS bonds carry a coupon rate of 5% with semi-annual payments, a $1,000 par, a AAA rating, and a maturity of 10 years. The current price of the TSS bonds is $900. b. TSS preferred stock currently pays a 10% dividend rate on a $100 par value and has a market value of $90 per share. a. c. TSS common shares paid a dividend of $4 last year. Dividends have grown at a rate of 6% per year and are expected to continue for a foreseeable future. The market price of the stock is $50 and there would be a flotation cost of 5% on a new issue. d. TSS' capital structure is as follows: Bonds (3,000 bonds outstanding) 3,000,000 Preferred stock (10,000 shares outstanding) 1,000,000 Common stock (600,000 shares) 6,000,000 e. f. The firm's average tax rate is 35% and its marginal tax rate is 40%. TSS uses five companies for peer-group comparisons. These five firms along with their betas after being adjusted for financial leverage effects are as follows: 49 Peer Group Firms Western Pacific Telectroics, Inc. Pacific United Beta 1.30 1.32 1.34 Peer Group Firms Southwestern, Inc. Ecological System, Inc Beta 1.26 1.28 g. Treasury bond currently yields 3% (TRF) and the expected market return (rm) is 10%. 1 1 1 } 1 A35 X & fx B D F E WETTE Date: TVIULUTUTA 5 6 71 8 9 10 11 12 13 11-1 14 15 16 11-2 17 18 Bonds Preferred stock Common stock Total Capital Structure $ 3,000,000 $ 1,000,000 $ 6,000,000 10,000,000 weight 0.30 0.10 0.60 cost 5% 10% 18% WACC 1.50% 1.00% 10.80% 13.30% After-tax cost of bonds: Semi-Annual YTM Annual YTM- Cost of Bonds Cost of retained earnings: DCF approach CAPM approach Average 19 Cost of preferred stock Cost of New Common Stock Amount Weight Cost WACC 3,000,000 1,000,000 + 6,000,000 10,000,000 20 11-3 21 11-4 22 23 11-5a 24 Bonds 25 Preferred Stock 26 Retained earnings 27 Total 28 29 11-5b 30 Bonds 31 Preferred Stock 32 New Common Stock 33 Total 34 35 36 37 38 Weight Cost WACC Amount 3,000,000 1,000,000 6,000,000 10,000,000 IT. Comprehensive Cost of Capital Problem. The Triple Seven Systems, Inc. (TSS), is starting its planning process for next year. Jack Tripper, the firm's CFO, calculates the weighted cost of capital each year to be used as a discount rate in the NPV analysis. You have been asked to help Mr. Tipper to compute the firm's cost of capital. You have collected the following data to do the job: TSS bonds carry a coupon rate of 5% with semi-annual payments, a $1,000 par, a AAA rating, and a maturity of 10 years. The current price of the TSS bonds is $900. b. TSS preferred stock currently pays a 10% dividend rate on a $100 par value and has a market value of $90 per share. a. c. TSS common shares paid a dividend of $4 last year. Dividends have grown at a rate of 6% per year and are expected to continue for a foreseeable future. The market price of the stock is $50 and there would be a flotation cost of 5% on a new issue. d. TSS' capital structure is as follows: Bonds (3,000 bonds outstanding) 3,000,000 Preferred stock (10,000 shares outstanding) 1,000,000 Common stock (600,000 shares) 6,000,000 e. f. The firm's average tax rate is 35% and its marginal tax rate is 40%. TSS uses five companies for peer-group comparisons. These five firms along with their betas after being adjusted for financial leverage effects are as follows: 49 Peer Group Firms Western Pacific Telectroics, Inc. Pacific United Beta 1.30 1.32 1.34 Peer Group Firms Southwestern, Inc. Ecological System, Inc Beta 1.26 1.28 g. Treasury bond currently yields 3% (TRF) and the expected market return (rm) is 10%. 1 1 1 } 1 A35 X & fx B D F E WETTE Date: TVIULUTUTA 5 6 71 8 9 10 11 12 13 11-1 14 15 16 11-2 17 18 Bonds Preferred stock Common stock Total Capital Structure $ 3,000,000 $ 1,000,000 $ 6,000,000 10,000,000 weight 0.30 0.10 0.60 cost 5% 10% 18% WACC 1.50% 1.00% 10.80% 13.30% After-tax cost of bonds: Semi-Annual YTM Annual YTM- Cost of Bonds Cost of retained earnings: DCF approach CAPM approach Average 19 Cost of preferred stock Cost of New Common Stock Amount Weight Cost WACC 3,000,000 1,000,000 + 6,000,000 10,000,000 20 11-3 21 11-4 22 23 11-5a 24 Bonds 25 Preferred Stock 26 Retained earnings 27 Total 28 29 11-5b 30 Bonds 31 Preferred Stock 32 New Common Stock 33 Total 34 35 36 37 38 Weight Cost WACC Amount 3,000,000 1,000,000 6,000,000 10,000,000