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A firm's debt is currently priced at $1150 while its common stock has a price of $23. New debt would have a coupon rate of
A firm's debt is currently priced at $1150 while its common stock has a price of $23. New debt would have a coupon rate of 7%, be semiannual and mature in twelve years. Flotation costs are 10% on bonds and 5% on common stock. The firm just paid a dividend of $1.62. Dividends have been growing at 9%. The firm has a marginal tax rate of 30%. We know the cost of preferred stock will definitely be:
greater than 8%
less than 8%
greater than 16%
less than 16%
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