Question: A construction company has 20 year bonds outstanding. The bonds have an 8.5% annual coupon, a face value of $1,000, and they currently sell for $945. The company's stock has a beta equal to 1.20. The market risk premium (km - krf) equals 5%. The risk free rate is 6%. The company has outstanding preferred stock that pays a $2 annual dividend. The preferred stock sells for $25 a share. The company's tax rate is 40%. The company's capital structure consists of 40% long-term debt, 40% common stock, and 20% preferred stock.
1. What is the company's after-tax cost of debt?
2. What is the company's after-tax cost of preferred stock?
3. What is the company's after-tax cost of common equity?
4. What is the company's WACC?