$($b$)$ What Corporation has the following book value capital structure:

Equity capital $(10$ million shares, $10$ par$)100$ million

Preference capital, $11$ percent shares, $100$ par$)10$ million

Retained earnings

Debentures $13\mathrm{.}5$ percent debentures, $100$ par$)$

Term loans, $12$ percent

$120$ million

$50$ million

$80$ million

The next expected dividend per share is $1\mathrm{.}50.$ The dividend per share is expected to grow at the rate of $7$ percent. The market price per share is $20\mathrm{.}00.$ Preference stock, redeemable after $10$ years, is currently selling for $75\mathrm{.}00$ per share. Debentures, redeemable after $6$ years, are selling for $80\mathrm{.}00$ per debenture. The tax rate for the company is $50$ percent.

$($a$)$ Calculate the cost of capital using book value and market value proportions.

$($b$)$ Define the marginal cost of capital if it needs $100$ million next year, assuming that the amount will be raised equally from equity and debt, the firm will retain $15$ million earnings next year, equity issue will fetch a net price of $16$ per share, and debt will cost $14$ percent for the first $25$ million and $15$ percent for the next $25$ million.