Delta, Inc. has a stock price of $50. In the fiscal year just ended, dividends were $2.00. Earnings per share and dividends are expected to increase at an

annual rate of 8 percent. The risk-free rate is 4 percent, the market risk premium is 6.4 percent and the beta on Deltas stock is 1.25. Deltas target capital

structure is 40% debt and 60% common equity. Deltas tax rate is 40 percent.

New common stock can be sold to net $40 per share after flotation costs. Delta can sell bonds that mature in 25 years with a par value of $1,000 and an

8% coupon rate paid annually for $960. Calculate the cost of financing from the sale of common stock.

the answer is

13.4%

but i need the way of solving it

Delta, Inc. has a stock price of $50. In the fiscal year just ended, dividends were $2.00. Earnings per share and dividends are expected to increase at an annual rate of 8 percent. The risk-free rate is 4 percent, the market risk premium is 6.4 percent and the beta on Delta's stock is 1.25. Delta's target capital structure is 40% debt and 60% common equity. Delta's tax rate is 40 percent. New common stock can be sold to net $40 pershare after flotation costs. Delta can sell bonds that mature in 25 years with a par value of $1,000 and an 8% coupon rate paid annually for $960. Calculate the cost of financing from the sale of common stock. O a. 12.3% b. 13.4% C. 9.39% d. 10.096