ELON company bonds yield to maturity is 10.80%. The company actual dividends are $1.40 in common stocks and $6.00 in preferred stocks. The preferred stocks flotation costs were 4% of price (the price is $70). The price of common stocks is 35. The growth rate in dividends during the last years is 6%. The optimal capital structure is: Debt 45% Preferred Stock 15% Common Equity (Retained Earnings) 40% The balance of retained earnings of Elon is 22 millions and the tax rate is 30%. If Elon issue new common stocks flotation cost will be $4 per share. 1 Elon is in the evaluation process of the following projects Project return Cost 7.80% 10 millions 2. 11.5% 20 millions 3 9.5% 15 millions 4 10.5% 20 millions 5 8.80% 10 millions Compute the after-tax cost of debt 10.8% O 7.56% O 8% 100/ Compute the cost of preferred stocks $6 8.57 8.93% 09.09% O none of the above Compute the cost of retained earnings 10.52% 6% 4% O 10% O none of the above Compute the weighted average cost of capital 8.95% 8.74% O 27% 26.5% O none of the above If Elon issue new common stocks, what will be the marginal cost of capital? 8.74% 8.95% O 10.52% 10% not enough data to answer the question Which project(s) Elon should accept? all projects should be accepted projects 2, 3, 4 and 5 should be accepted O projects 2, 3 and 4 should be accepted O projects 2 and 4 should be accepted only project 2, because they are mutually exclusive projects