Question

You are the Chief Financial Officer of Incomprehensible Technologies Inc. (ITI). The CEO has asked you...

You are the Chief Financial Officer of Incomprehensible Technologies Inc. (ITI). The CEO has asked you to calculate the firm’s overall WACC. Your team of analysts has presented you with the following data:

Common Stock: The company has 50,000 shares of common stock outstanding that sells for $10 per share. The stock’s beta is 1.8, Treasury Bills are yielding 2%, and the expected return of the market is 7%.

Bonds: The company also has 400 bonds outstanding with a par value of $1000 and make semi-annual coupon payments. The bonds have a coupon rate of 5%, there are 12.5 years to maturity, and they are currently selling on the market at $912.93.

Preferred Stock: The company has 5,000 shares of preferred stock outstanding selling at $20 per share. The dividend on the Preferred Stock is $0.75 per quarter. Ignore the effect of taxes

A What is the company's cost of equity?

B What is the company's cost of debt?

C What is the cost of the company's Preferred Stock?

D What is the company's WACC?

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