Reference no: EM132185333

The Laredo Lounge, Inc., plans to issue 20-year bonds with a 8.70 percent coupon rate, with coupons paid semi-annually and a par value of $1,000. The company's tax rate is 40 percent.

Laredo Lounge plans to issue $50 par preferred shares with annual dividends of $4 (i.e., a 8 percent dividend yield). What is the percentage cost of preferred stock?

Laredo Lounge wishes to make a new issue of common shares. The current market price is $25, next period's dividend is $2 (expected dividend at the end of this year), the risk-free rate is 6 percent, the expected return on the market is 14 percent, and the beta for ABC is 0.88. The growth rate is 8 percent per year, indefinitely. What is the company's cost to issue new common shares using both the dividend valuation approach and CAPM (rounded to two decimal places)?

What is the WACC if the company wishes to raise funds in the following proportions: 40 percent debt, 20 percent preferred stock, and 40 percent common equity? Assume the cost of equity is best estimated using the CAPM (rounded to three decimal places).