Pizza Girls, a national fast food franchise, has decided to professionalise its project evaluation. Previously, franchise locations had been selected on an ad hoc basis, with mixed results. The...

Pizza Girls, a national fast food franchise, has decided to professionalise its project evaluation. Previously, franchise locations had been selected on an ad hoc basis, with mixed results. The managing director has decided the net present value analysis is the best method. You have been given the task of determining the current cost of obtaining new finance and to calculate the cost of capital of Pizza Girls using the following information: Debt: 5,000 bonds with face value $1000 each and 8% coupon rate, paid annually, price quote of 115; the bonds have 20 years to maturity. Preferred stock: 100,000 shares of 5 percent preferred stock with a current price of $75, and a par value = $100 Common Stock: 1,500,000 shares of common stock, the beta of Pizza Girls is 1.5, Pizza Girls is expected to pay a dividend $0.60 next year, and the current price implicitly implies a dividend growth rate of 4% per year indefinitely. Market: the risk free rate is 4%, and the return on the market portfolio is 12%. Assume that Pizza Girls will maintain the current capital structure indefinitely. Pizza Girls has a corporate tax rate of 30%. Required: (1) What is the market value of the debt? (2) What is the aftertax cost of the debt? (Note：6%