Financial Management

2. ABC ltd. has the following capital structure, which it thinks is optimal: Investors expect earnings and dividends to grow at a constant rate of 9% in the future. ABC ltd. paid a dividend of $3.60 per share last year, and its stock currently sells at a price of $55 per share. ABC ltd. can obtain new capital in the following ways: Preferred: New preferred stock with a dividend of $15 can be sold to the public at a price of $90 per share. Debt: Debt can be sold at an interest rate of 12%. (a) Determine the cost of each capital structure component (b) Calculate the weighted average cost of capital