Question
AromaPlus, a essential oil company, plans to start a new project and will finance the project with 40% debts and the rest in common stocks.
AromaPlus, a essential oil company, plans to start a new project and will finance the project with 40% debts and the rest in common stocks. The company will issue a 10-year, 5% coupon bond that is can sell for $925.61. The company's stock is currently selling for $48 a share. It is paying $1.8 in dividend and dividend has been growing at 8% a year, and is expect to remain the same. The company's stock has a beta of 1.3 and the market rate of return is 11.3%, with risk free rate of 2.5%. What is the company's cost of debts and common equities (stocks)?
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