The Imaginary Products Co. currenty has debt with a market value of $225 million

Question

The Imaginary Products Co. currenty has debt with a market value of $225 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15 years and are currently priced at $900.37 per bond. The firm also has an issue of 2 million preferred shares oustanding with a market price of $15. The preferred shares pay an annual dividend of $1.20. Imaginary also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected t pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 8 percent per year forever. If Imaginary is subject to a 40 percent marginal tax rate, then what is the firm's weighted average cost of capital. The weights are debt 42.06, preferred equity 5.61, and common equity is 52.34. What is the cost of debt?

Explanation / Answer

WACC=Wd*Kd+Wp*Kp+We*Ke

=42.06*Kd+5.61*Kp+52.34*Ke

im not sure about calculating cost of debt,equity,preffered equity

Kp+Kd+Ke=1

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