Answer Happy

Honda is considering increasing production after unexpectedstrong demand for its new motorbike. To evaluate the proposal, thecompany needs to calculate its cost of capital. You've collectedthe following information:
Attempt 3/5 for 10 pts.
Part 1
What is the (pre-tax) cost of debt?
Submit
Attempt 2/5 for 10 pts.
Part 2
What is the cost of preferred stock?
Correct ✓
rp =DpPp=3.5135.26=rp =DpPp=3.5135.26= 0.02588
Attempt 1/5 for 10 pts.
Part 3
What is the cost of equity using the CAPM?
Correct ✓
rs=rf+β(rM−rf)rs=rf+β(rM-rf)
= 0.021+0.5(0.06−0.021)0.021+0.5(0.06-0.021)
= 0.0405
Attempt 1/5 for 10 pts.
Part 4
What is the cost of equity using the constant growthmodel?
Correct ✓
P0 =D0 (1+g)rs−gP0 =D0 (1+g)rs-g
⇔ rs=D0(1+g)P0+g =1.42(1+0.04)49.23+0.04=rs=D0(1+g)P0+g =1.42(1+0.04)49.23+0.04= 0.07
Attempt 1/5 for 10 pts.
Part 5
What is the cost of equity using the bond yield plusrisk premium?
Submit
Attempt 1/5 for 10 pts.
Part 6
What is your best guess for the cost of equity if you think allthree approaches are equally valid?
Submit
Attempt 1/5 for 10 pts.
Part 7
What is the company's weighted average cost of capital?