Business, 03.07.2020 22:01, cheergirl2133

Northwest Corporation is estimating its WACC. Its target capital structure is 35% debt and 65% common equity. Its bonds have a 10% coupon rate, paid semiannually, and a current maturity of 20 years. Bonds have a current market price of $1,100 and par value of $1,000. Northwest' beta is 1.47, the risk-free rate is 3.2%, and the market risk premium is 7%. Northwest is a constant-growth firm which just paid a dividend of $2.80, its stock sells for $24.00 per share, and has a growth rate of 4%. The firm's marginal tax rate is 21%. Required:
a. What is the cost of debt?
b. What is the cost of newly issued preferred stock?
c. What is cost of equity based on CAPM, DCF, and Bond Yield + Risk Premium?
d. What is WACC? (Assume cost of equity is the average of cost of equity from three models)

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Northwest Corporation is estimating its WACC. Its target capital structure is 35% debt and 65% commo...