Fury's Management consultants $i{s}_{{?}_{?}}$ considering issuing new preferred stock at a price of $$70$ per

share. It would cost Fury's $$3$ in flotation costs per share to issue them. They would carry a

dividend of $$6.$ If the tax rate for Fury's is $25\%,$ what is its cost of preferred stock?

Natasha Romanov is the CFO for a waste management business. She is preparing for a

presentation to her CEO and Board of Directors on the capital structure of the firm. Her

intuition is that the after$-$tax cost of debt is at least $4\%$ less than the cost of preferred stock

financing.

Wanting to impress her boss, she asks you to calculate the numbers and verify her intuition.

The firm has debt outstanding with a $9\%$ coupon and a current yield to maturity of $12\%.$ The tax

rate is $25\%.$ It can issue preferred stock for $$50$ per share. These preferred shares have a

dividend of $$6$ and floation costs of $$7.$ Was she right?

Suppose that Barton's Optometrists has a capital structure that consists of $35\%$ debt, $25\%$

preferred stock and $40\%$ common equity. If the after$-$tax cost of debt is $7\%,$ the cost of

preferred stock is $9\mathrm{.}5\%$ and the cost of common equity is $12\%,$ what is Barton's weighted

average cost of capital?