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CSM Inc. has the following balance sheet (in $000):
Assets:                                                         Liabilities and equity:
Current assets 13,500                              Short-term debt 17,400
Long-term investments 3,135                 Long-term debt 45,000
PP&E 30,900                                                Other liabilities 42,600
Other assets 112,465                                  Preferred stock 10,000
Common equity 45,000
Total assets 160,000                              Total liabilities and equity 160,000

Debt: The interest cost for short-term debt is 3%. For long-term debt, the company has only one semiannual coupon bond outstanding. The coupon rate is 6%; time to maturity is 10 years and change the answers; and current bond price is 90% of face value. Corporate tax rate is 20%.

Preferred stocks: 1 million shares; dividend $6 per share with market price of $100.

Common stocks: 3 million shares outstanding; stock price $50 per share; beta is 0.5; T-bond rate is 3%;
the market return is 15%.

The company finances all of its projects with long-term debt, preferred stocks and common stocks.

1. Required
   1. Estimate before-tax cost of debt (%).
   2. Estimate cost of preferred stocks (%).
   3. Estimate cost of common stocks (%)
   4. Cost of capital = _________% based on market value weights
2. 5. Cost of capital = _________% based on book value weights
   6. Name two applications of cost of capital.

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