ABC Inc. has a current stock price of $10 and is expected to pay a dividend of $1. After then, dividends are expected to grow at a rate of 2% per year forever. What is ABCs cost of equity? ANS RE = 1 10 + 0.02 = 0.12 = 12% The company also has preferred stock outstanding at a price of $40 that pays $2 per share fixed dividend. What is the cost of preferred shares? ANS RPS = 2 40 = 0.05 = 5% ***QUESTION****

The company just issued new debt with a yield to maturity of 6% and a coupon rate of 5.7% and is trading at 110% of its face value. What is the companys cost of debt (pre-tax)?