26. The most recent Balance Sheet for ABCD Company, together with yesterday's closing stock price, indicate the following: ABCD Company's management believes that: (i) New debt securities can be sold in the market at an effective rate of interest (before taxes) of 12\%. The company s income tax rate is 40%. An issue of the firm's preferred stock paying an annual dividend of $4 per share could be placed in the market at $50 per share. As you know, flotation costs for bonds and preferred stocks are usually small; and you can assume that they can be neglected here. (ii) Earnings per share one year hence are expected to be $10, of which 60% are expected to be paid out in common stock dividends. One year from today, the effective annual growth rate of earnings is expected to fall from its current rate to a rate of only about 7%. The dividend payout ratio, however, is expected to rise to 80%. The lower earnings growth rate and the higher dividend payout ratio are expected to remain constant for the foreseeable future. (iii) The market price of ABCD Company's common stock has recently been $100 per share, and you believe that this market price is a reasonable measure of the "intrinsic" value of the company's stock (i.e., it's Po). Flotation costs to issue additional common stock are estimated to be 20%. Estimate ABCD Company's cost of capital using a) Book value weights; and b) Market value weights. c) Please comment succinctly and clearly on the results for this question. 26. The most recent Balance Sheet for ABCD Company, together with yesterday's closing stock price, indicate the following: ABCD Company's management believes that: (i) New debt securities can be sold in the market at an effective rate of interest (before taxes) of 12\%. The company s income tax rate is 40%. An issue of the firm's preferred stock paying an annual dividend of $4 per share could be placed in the market at $50 per share. As you know, flotation costs for bonds and preferred stocks are usually small; and you can assume that they can be neglected here. (ii) Earnings per share one year hence are expected to be $10, of which 60% are expected to be paid out in common stock dividends. One year from today, the effective annual growth rate of earnings is expected to fall from its current rate to a rate of only about 7%. The dividend payout ratio, however, is expected to rise to 80%. The lower earnings growth rate and the higher dividend payout ratio are expected to remain constant for the foreseeable future. (iii) The market price of ABCD Company's common stock has recently been $100 per share, and you believe that this market price is a reasonable measure of the "intrinsic" value of the company's stock (i.e., it's Po). Flotation costs to issue additional common stock are estimated to be 20%. Estimate ABCD Company's cost of capital using a) Book value weights; and b) Market value weights. c) Please comment succinctly and clearly on the results for this