Question 3 Company Background: GAP Ltd. is considering a new project that requires a large initial...

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Question 3 Company Background: GAP Ltd. is considering a new project that requires a large initial cost, and it needs to calculate its weighted average cost of capital (WACC) to decide whether to proceed with the project. Capital Structure: Common Stock: 2.5 million shares outstanding, with a par value of $1 per share, and a market price of $5.5 per share. Preferred Stock: 500,000 shares outstanding, with a par value of $10 per share, and a current market price of $13 per share. The preferred stock pays an annual dividend of $0.75 per share. Debt: 30,000 zero coupon bonds outstanding with face value of $1,000 each. The issue price of the bonds is $850 per bond. The bonds have 4-year maturity and currently trade in the market at $900 per bond. The bonds compound semi-annually. Market Information: The current risk-free rate is 3%. The expected market return is 8.5%. The company's beta is 0.8. The company is in the 35% corporate tax bracket. Question 3 Company Background: GAP Ltd. is considering a new project that requires a large initial cost, and it needs to calculate its weighted average cost of capital (WACC) to decide whether to proceed with the project. Capital Structure: Common Stock: 2.5 million shares outstanding, with a par value of $1 per share, and a market price of $5.5 per share. Preferred Stock: 500,000 shares outstanding, with a par value of $10 per share, and a current market price of $13 per share. The preferred stock pays an annual dividend of $0.75 per share. Debt: 30,000 zero coupon bonds outstanding with face value of $1,000 each. The issue price of the bonds is $850 per bond. The bonds have 4-year maturity and currently trade in the market at $900 per bond. The bonds compound semi-annually. Market Information: The current risk-free rate is 3%. The expected market return is 8.5%. The company's beta is 0.8. The company is in the 35% corporate tax bracket.