Aaron’s Rentals has 45 000 shares of common stock outstanding at a market price of $27 a share. The common stock just paid a $1.10 annual dividend and has a growth rate of 3.2 percent. There are 10 000 shares of 5.5 percent preferred stock outstanding at a market price of $48 a share. The preferred stock has a par value of $100. The outstanding bonds mature in 11 years have a total face value of $800 000 a face value per bond of $1 000 and a market price of $987.60 each. The bonds pay 7.5 percent interest semiannually. The tax rate is 35 percent.1. What are the pre-tax cost of debt and after-tax cost of debt?2. What are the capital structure weights for common stock and debt?3. What is the firm’s weighted average cost of capital?
