Question $8(12$ points$)$

CafeSi Inc. is constructing its Cost of Capital schedule. The firm is at its target capital

structure. Its $15$ year bonds have a $5\mathrm{.}0\%$ coupon rate and sell for $$902.$ Bond

coupons are semi$-$annual. CafeSi's stock beta is $1\mathrm{.}5,$ the risk$-$free rate is $3\mathrm{.}0\%,$ and

the market risk premium is $7\mathrm{.}0\%.$ CafeSi is a constant growth firm, the company just

paid a dividend of $$2\mathrm{.}50$ and the dividend grows at an annual rate of $4\mathrm{.}0\%$ forever.

The stock sells today for $$45\mathrm{.}00.$ The firm's tax rate is $20\%.$ The firm's book value

balance sheet is as follows: Assets $$37,100,$ Long Term Debt $$36,000$$$1\mathrm{.}00$

par$$3,874,$ Retained Earnings $-$ $$4,274,$ Comprehensive Income $1,500.$ To the

nearest $\mathrm{.}1\%,$ what is the weight of equity that should be used used in computing the

Weighted Average Cost of Capital?

what is the pre$-$tax cost of debt?

A To the nearest. $1\%,$

is

A To the nearest. $1\%,$ what

is the cost of retained earnings using the Constant Growth

Model?

To the nearest $\mathrm{.}1\%,$ what is the cost of equity

using the Capital Asset Pricing Model $($CAPM$)?$

A Using your

Constant growth model cost of equity, to the nearest $.1\%,$ what is CafeSi's Weighted

Average Cost of Capital?