Po DO g Flotation cost for common Ppt Dpf Flotation cost for preferred Bond maturity Payments per year Annual coupon rate Par Bond price Tax rate Beta Market risk premium, RPM Risk free rate, RF Target capital structure from debt Target capital structure from preferred stock Target capital structure from common stock $50.00 $3.13 7% 10% $32.61 $3.30 8% 20 2 12% $1,000.00 $1,171.59 25% 1.2 6.0% 6.5% 45% 5% 50% a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock (including flotation costs), and the cost of equity (ignoring flotation costs). Use both the the CAPM method and the dividend growth approach to find the cost of equity. Cost of debt: N= PMT = PV = FV = 40 $60.00 -$1,171.59 $1,000.00 Semiannual yield = RATE = Annual B-T rd B-T rd X (1 T) A-T ra 0% = Cost of preferred stock (including flotation costs): Dpf / Net Ppf rpf = Cost of common equity, dividend growth approach (ignoring flotation costs): D1 1 Po + g rs Cost of common equity, CAPM: TRF + b * RPM rs b. Calculate the cost of new stock using the dividend growth approach (include flotation costs). Do * (1 + g) Pox (1 F) + g re C. Assuming that Gao will not issue new equity and will continue to use the same capital structure, what is the company's WACC? Wd Wpf 45.0% 5.0% 50.0% 100.0% Ws Wd * A-Trd + Wpf * rpf + Ws X rs = WACC =