Reference no: EM132763627

METRA is considering building a new train line from Chicago to Utopia. Use the following information to help Metra determine their cost of capital to assess the project:

1. Debt totals $150 million with a 5% coupon and has been outstanding for 2 year
2. Common stock (14 million shares outstanding) now trade at $25 per share
3. Bonds similar to METRA's existing debt are currently priced at 103.5
4. The common stock will pay an annual dividend of $1.20 next year, up from $0.90 five years ago.
5. METRA pays a corporate tax rate of 21%.
6. The risk-free rate is 3%, the market return is 9%
7. Metra's common stock Beta is 1.4

Problem 1: What debt and equity weights will Metra use to calculate WACC?

Problem 2: What is METRA's cost of debt?

Problem 3: What is METRA's cost of common equity?

Problem 4: What is METRA's WACC?