The next 3 questions are based on the following Your company manufactures widgets to mentally retarded individuals. It t

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The next 3 questions are based on the following Your company
manufactures widgets to mentally retarded individuals. It turns out
that the number of mentally unstable people has been on the rise so
your company needs to expand its facilities to be able to produce
more and meet the increasing market demand. The company needs raise
new capital to expand its facilities. The firm's optimum capital
structure has been 45% debt, 10% preferred stock and 45% equity.
The company will maintain this capital structure in financing this
expansion plan. Currently the company's common stock is traded at a
price of $20 per share. Last year's dividend was $1.50 per share.
The growth rate is 8%. The company's preferred stock is selling at
$50 and has a dividend of 6%. Flotation costs have been estimated
at 8% of common stock and 3% of preferred stock. The company has
bonds outstanding selling for $975 with 9 years to maturity. The
coupon rate on those bonds is 8% with semi-annual payments. The tax
rate is 46%.
7-What is the cost of new common stock? a) 15.04% b) 16.8% c)
14.0% d) 15.81% e) None of the above
8-What is the cost of new preferred stock? a) 12.37% b) 10.31%
c) 11.45% d) 10.0% e) 12.0%
9-What is the WACC for this company? a) 11.05% b) 10.84% c)
9.84% d) 8.65% e) None of the above