A firm has a capital structure of 30% debt, 60% common equity, and 10% preferred equity. The bonds pay a 8% semi-annual coupon, have a $1000 par value, and have a maturity length of 7 years. The market value of the bonds is $1100 and the tax rate facing the firm is 40%. The firm has common stock with a beta of 1.25. The risk free rate on Treasury bonds is 2%, while the market risk premium is 8%. The firm also has 7% preferred stock.
- What is the firm's cost of debt?
- What is the firm's cost of equity?
- What is the firm's weighted average cost of capital?