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Edna Recording Studios, Inc., reported earnings available to common stock of $4200000 last year. From these earnings, the company paid a dividend of $1.26 on
Edna Recording Studios, Inc., reported earnings available to common stock of $4200000 last year. From these earnings, the company paid a dividend of $1.26 on each of its 1000000 common shares outstanding. The capital structure of the company includes 40% debt, 10% preferred stock, and 50% common stock. It is taxed at a rate of 40%. The company currently has $1000-par-value, 10% coupon, 5-year bonds that can be sold for $1175 each. What is the after tax cost of debt financing? (Show your work/calculations)
A. 5.86%
B. 6.99%
C. 3.52%
D. 10.00%
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