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Company X has a current financial structure that is composed of 50% debt, 40% ordinary shares, and 10% preference shares. Ignore the effects of cost of retained earnings. The beta of Company X shares is 0.7, and the current risk-free rate of return is 4%. The market risk premium is 6%. The dividend on Company X preference shares is set at P2.25, and the net issuance price per share (which happens to be the same as the current price per share) of preference shares is P30. Debt issued by Company C yields an 11% stated interest rate to investors. The marginal tax rate for Company X is 40%. What is the weighted-average cost of capital for Company X? 

2. Sondob Dairies has a capital structure that consists of 60 percent long-term debt and 40 percent ordinary shares. The company's CFO has obtained the following information: The before-tax yield to maturity on the company's bonds is 8 percent. 

The company's ordinary share is expected to pay a P3.00 dividend at year-end (D1 = P3.00), and the dividend is expected to grow at a constant rate of 7 percent a year. The ordinary shares are currently sells for P60 a share. Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget. The company's tax rate is 40 percent. What is the company's weighted average cost of capital (WACC)? 

3. Gateway Inc. has a weighted average cost of capital of 11.5 percent. Its target capital structure is 55 percent equity and 45 percent debt. The company has sufficient retained earnings to fund the equity portion of its capital budget. The before-tax cost of debt is 9 percent, and the company's tax rate is 30 percent. If the expected dividend next period is P5 and the current share price is P45, what is the company's growth rate?

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