Rainbow Airways is in the 40% tax bracket. Information on the company's debt, preferred stock and common stock are as follows: 4 Debt The company can issue bonds at a yield to maturity of 8.25%. Preferred Stock The company can sell 9% preferred stock at its $55 per share par-value. Floatation costs are $5 per share. Common Stock Price per share is currently $50. Dividends are projected at $4 per share next year with a dividend growth rate of 5%. There are no floatation costs. (i) Calculate the cost of debt. (ii) Calculate the cost of preferred stock. (iii) Calculate the cost of common stock. (2 marks) (2 marks) (2 marks) (iv) Rainbow Airways' capital structure is 20% debt, 40% preferred stock and 40% common stock. Calculate the weighted average cost of capital (WACC). (4 marks)

Answer rating: 100% (QA)

Rainbow Airways Capital Structure Analysis Given Tax rate 40 Debt Yield to maturity825 Preferred sto... View the full answer