Question 5: 8 points Chapter 8 CLO 5 The Media City Corporation is funded exclusively with common and preferred stock. The current share price of the companys common shares is $20.10 and the firms management has just made an announcement that they will pay a $1.80 dividend per share this year. After that, dividends are expected to grow by 6.7% per year. The firms preferred shares pay a $3.20 fixed dividend and are currently priced at $34.70. The company has 125,000 ordinary shares and 55,000 preferred shares outstanding. a. Calculate the companys cost of common equity. (2 points) b. Estimate the companys cost of preferred equity. (1 point)

c. Find the firms total market value of equity. (1.5 points) d. Compute the firms total market value of assets. (0.5 points)

e. Determine the percentage of assets that the company finances through the issue of (i) common shares, and (ii) preferred shares. (2 points) f. The CFO of the Media City Corporation, Mr Stephen Baldwin, has announced to the investors that the company will need to raise more capital to finance the purchase of a new factory in Manama, Bahrain through the issue of shares. Write a brief note to Mr Baldwin, where you explain and provide reasoning for choosing either preferred or ordinary stock. (1 point)