A. Bad Boys, Inc. is evaluating its cost of capital. Under consultation, Bad Boys, Inc. expects to issue new debt at par with a coupon rate of 8% and to issue new preferred stock with a $2.50 per share dividend at $25 a share. The common stock of Bad Boys, Inc. is currently selling for $20.00 a share. Bad Boys, Inc. expects to pay a dividend of $1.50 per share next year. An equity analyst foresees a growth in dividends at a rate of 5% per year. Bad Boys, Inc. marginal tax rate is 35%. If Bad Boys, Inc. raises capital using 45% debt, 5% preferred stock, and 50% common stock, what is Bad Boys cost of capital?

B. If Bad Boys, Inc. raises capital using 30% debt, 5% preferred stock, and 65% common stock, what is Bad Boys cost of capital?

CONSULTATIONAL BUDGET Coupon Rate Price of preferred stock Dividend COMMON STOCK BUDGET Price of stock Dividend EQUITY ANALYST VIEW Dividend growth rate Marginal tax rate Capital Debt rate Capital preferred stock rate Capital common stock rate Cost of Debt Cost of Equity-1 Cost of Equity-2 WACC A B 0 0 #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! NAME of CORPORATION 1 References: NAME of CORPORATION 2 References