Question
Bates Corporation is considering four average risk projects with the following costs and rates of return: Expected Project Cost Rate of Return 1 $4,000 18%
Bates Corporation is considering four average risk projects with the following costs and rates of return:
Expected
Project Cost Rate of Return
1 $4,000 18%
2 $3,000 16%
3 $7,000 13.75%
4 $2,000 12.50%
The company estimates that it can issue debt at a rate of rd = 10%, and its tax rate is 30%.
It can issue preferred stock that pays a constant dividend of $5.00 per year at $40.00 per share.
Also, its common stock currently sells for $32.00 per share; the next expected dividend, D1, is $3.50; and the dividend is expected to grow at a constant rate of 6% per year.
The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock.
Question #11: What is the cost of common stock?
Group of answer choices
16.94%
14.75%
12.51%
18.55%
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