Question

EDIT: Do not need answer anymore, solved problem and got 7% which is correct.

Feel free to solve my problem by showing work.

Answer 1

7%

Working:

Step-1:Calculation of Weight of each component of capital
Market Value of debt	=	3,000	*	$             1,000	*	105%	=	$     31,50,000
Market Value of common stock	=	69,000	*	$                   60			=	$     41,40,000
Market Value of preferred stock	=	9,500	*	$                 107			=	$     10,16,500
Total								$     83,06,500
Weight of :
Debt		$ 31,50,000	/	$     83,06,500	=	0.37922109
Common stock		$ 41,40,000	/	$     83,06,500	=	0.49840486
Preferred stock		$ 10,16,500	/	$     83,06,500	=	0.12237404
Total						1.00000
Step-2:Calculation of cost of each component
Before tax cost of debt	=	=rate(nper,pmt,pv,fv)*2		Where,
	=	4.63%		nper	=	42
				pmt	=	$         25.00
				pv	=	$ -1,050.00
				fv	=	$   1,000.00
After tax cost of debt	=	4.63%	*(1-0.33)
	=	3.10%
Cost of common stock	=	Risk free rate + Beta*market risk premium
	=	4%+1.11*6%
	=	10.66%
Cost of preferred stock	=	Annual dividend	/	Current Selling Price
	=	$            4.50	/	$           107.00
	=	4.21%
Step-3:Calculation of WACC
		Weight	Cost
		a	b	c=a*b
Debt		0.37922109	3.10%	1.18%
Common stock		0.49840486	10.66%	5.31%
Preferred stock		0.12237404	4.21%	0.51%
Total				7.00%
So,
WACC is 7.00%