( Individual or component costs of capital Compute the cost of the following . A band that has $1 600 par value ( face value ) and a contract or coupon interest rate of 1 percent A new issue would have a flotation cost of 5 percent of the $1 125 market value , The bands mature in 10 years . The firm's average tax rate is 30 percent and its marginal tax rate is 34 percent b . A new common stock issue that paid a $ 80 dividend last year . The par value of the stock is $15 , and earnings per share have grown at a rate of 7 percent per year . This growth rate is expected to continue into the foreseeable future . The company maintains a constant dividend earnings ratio of 30 percent . The price of this stock is now $27 50 but 5 percent flotation costs are anticipated C . Internal common equity when the current market price of the common stock is $43 , The expected dividend this coming year should be $3 50 increasing thereafter at a 7 percent annual growth rate . The corporation's tax rate is 34 percent d . A preferred stock paying a percent dividend on a $ 10 par value . If a new issue is offered flotation costs will be 12 percent of the current price of $75 e . A band selling to yield 12 percent after flotation costs , but before adjusting for the mar Final corporate tax rate of 34 percent In other words , 12 percent is the rate that equates he net proceeds from the band with the present value of the future cash flows ( principal and interest )