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1. Maxis Industries is considering a major expansion hat has been proposed by the firm's manufacturing division. Before proceeding with the expansion, the firm must estimate its cost of capita. Your job, as the Director of Finance, is to estimate the firm's cost of capital Use the information provided below: -The firm's tax rate is 35% The current price of Maxis' debt is $907.50. The debt has 9 years left to maturity and has a 9% coupon. No floatation costs would be incurred with the issuance of new debt The firm has outstanding 11% Preferred with a par value of $25.00. The preferred currently trades at $23.85 - Maxis' common stock trades at $45.00. It's last dividend Do) was $1.45 and is expected to grow at a constant rate of 4%. Maxis, beta is 1.4, the risk free rate is 6% and the market premium is 5%. The bond-yield plus risk premium is 5% -Maxis, target capital structure is 40% debt, 20% preferred and 40% common stock. a. Calculate the firm's after-tax cost of debt b. Calculate the firm's cost of preferred stock. c. Calculate the firm's cost of common stock, using dividend discount, CAPM and bond-yield plus risk premium approach. Use the average of the three approaches to determine the cost of common stock. d. With the information above, calculate the firm's Weighted Average Cost of Capital e. What is WACC used for? Explain f. Why is the cost of retained earnings less than the cost of issuing new common stock? Explain

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