Question: The second step is to estimate the discount rate, which is the WACC of HappyParadise. a. The beta of HappyParadise is 1.5, the return of

The second step is to estimate the discount rate, which is the WACC of HappyParadise.

a. The beta of HappyParadise is 1.5, the return of S&P 500 is 5%, and the return of Treasury bill is 1%. What is the required return of common stocks for HappyParadise?

b. HappyParadise also issues preferred stocks. The price of one share of preferred stock is $20. It pays $1 dividend each year. What is the required return of preferred stock?

c. The yield to maturity of bonds issued by HappyParadise is 4%. The coupon rate of bonds issued by HappyParadise is 6%. The market value of common stocks is $2,500 million, the market value of preferred stock is $1,000 million, and the market value of bonds is 500 million. What is the Weighted Average Cost of Capital for HappyParadise (Hint: you can find the tax rate from income statement in (1) a.)?

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