$21$

$1\mathrm{.}8$ points

A$-$Rod Manufacturing Company is trying to calculate its cost of capital for use in making a capital budgeting decision. Mr$.$ Jeter, the vice president of finance, has given you the following information and has asked you to compute the weighted average cost of capital.

The company currently has outstanding a bond with a $9\mathrm{.}9$ percent coupon rate and another bond with an $7\mathrm{.}5$ percent rate. The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield $10\mathrm{.}8$ percent. The common stock has a price of $$53$ and an expected dividend $(D_1)$ of $$1\mathrm{.}73$ per share. The historical growth pattern $(g)$ for dividends is as follows:

$$1\mathrm{.}28$

$1\mathrm{.}42$

$1\mathrm{.}57$

$1\mathrm{.}73$

The preferred stock is selling at $$73$ per share and pays a dividend of $$6\mathrm{.}90$ per share. The corporate tax rate is $30$ percent. The flotation cost is $20$ percent of the selling price for preferred stock. The optimum capital structure for the firm is $30$ percent debt, $10$ percent preferred stock, and $60$ percent common equity in the form of retained earnings.

a$.$ Compute the average historical growth rate.

Note: Do not round Intermedlate calculatlons. Round your answer to the nearest whole percent and use thls value os $g.$ Input your onswer as a whole percent.

Answer is complete but not entirely correct.

Growth rate

$1\mathrm{.}50$

$\%$

b$.$ Compute the cost of capital for the individual components in the capital structure.

Note: Use the rounded whole percent computed In part a for $g.$ Do not round any other Intermedlate calculatlons. Input your answers os a percent rounded to $2$ declmal ploces.

Answer is complete but not entirely correct.

$\backslash$table$[[,$Weighted Cost$],[$Debt$,8\mathrm{.}70ox,\%$