1. You have the following information. Firm A has a capital structure consisting of 40% debt and 60% equity. The firm is planning to raise $25 million to finance its capital investment projects. Firm A can raise debt funds through bank loans at a pretax cost of 9%. A bond issue would have a pretax cost of 10%. Firm A's common stock dividend is presently $2 per share. Firm A's common stock is selling now for $25 per share. New common stock (issued) could be sold for $25 per share and there is no flotation cost. Over the past several years, Firm A's earnings and dividends have grown at an average of 7% per year, and this growth rate is expected to continue for the foreseeable future. Firm A has a marginal tax rate of 40%. Given this information, calculate Firm A's weighted (marginal) cost of capital. a) [STEP 1] What is the firm A's capital structure? b) [STEP 2] Calculate the costs of the individual sources of funds. (1) Cost of bank loan debt: Kd = kd(1-T) = ?% (2) Cost of bond debt: Kd = kd(1-T) = ?% (3) Cost of Common equity: Kc = (D1 / Market price) + g = ?% *If flotation cost is non-zero, then "cost of common equity (internal)"