a. there are 10000 shares of preferred stock, purchased at a price of $90; the preferred stock pays a 10% annual dividend and has a face value of $100/share [hint: determine the preferred shareholders expected return and the total market value. Plug into WACC formula after doing parts b and c]
b. there are 100,000 common shares outstanding; while the par value is $1/share, the shares were actually purchased for $2/share and shareholders expect them to pay $.50/share for the next dividend and the dividends will continue to grow 4%/yr [hint: determine expected return of common shareholders and total market value of common shares; then plug info into WACC formula]
c. there are 1000, $1000 face value, 5% semi-annual coupon 30 year bonds. The bonds just sold for $900. [hint: first determine the bonds YTM; then determine the market value of the bonds]
d. determine WACC using WACC formula after first determining the % of total market value than each of the 3 components above represent. The corporate tax rate is 40%
