Question: QUESTION 4 (12 marks) Rel & Co. has a target capital structure that calls for 40 percent debt, 10 percent preferred stock, and 50 percent

QUESTION 4 (12 marks) Rel & Co. has a target capital structure that calls for 40 percent debt, 10 percent preferred stock, and 50 percent common equity. The firm's current before-tax cost of debt is 6 percent, and it can sell as much debt as it wishes at this rate. The companys federal tax rate is 40 percent. The firm's preferred stock currently sells for RM90 per share and pays a dividend of RM10 per share; however, the firm will net only RM80 per share from the sale of new preferred stock. It's common stock currently sells for RM40 per share. The firm recently paid a dividend of RM2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10 percent per year.

a. What is the firm's cost of common stock, rs? (2 marks)

b. What is the firm's cost of common stock, rs? (3 marks)

c. What is the firm's cost of newly issued preferred stock, rps? (3 marks)

d. What is the firm's weighted average cost of capital (WACC)? (4 marks)

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