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Duchess Corporation, a major hardware manufacturer, is contemplating selling $10 million worth of 20-year, 9%...

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Duchess Corporation, a major hardware manufacturer, is contemplating selling $10 million worth of 20-year, 9% coupon bonds with a par value of $1,000. Because current market interest rates are greater than 9%, the firm must sell the bonds at 980. Flotation costs are 2%. The company has a 40% tax rate. It is contemplating the issuance of a 10% preferred stock that is expected to sell for its $87-per share value. The cost of issuing and selling the stock is expected to be 55 per share. The firm's investment advisors and its own analysts indicate that the risk-free rate, RF, equals 7%; the firm's beta, b, equals 1.5; and the market return, rm, equals 11%. Required 1. Calculate the after tax cost of long debt 2. Calculate the cost of preferred stock 3. Calculate the cost of common equity using the CAPM 4. Using the following weights calculate the weighted average cost of capital Long term debt -40% Preferred stock - 10% Common stock equity - 50%

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