K

k_(cs )=(D_(1))/(P_(cs))=+

g \ Where

D_(1)=

the dividend expected to be recieved by the firms shsregolders 1 year hence g= the rate at which dividends are expected to grow forever \

k_(cs)=

the investors required rate of return \

p_(cs)=

the current price of a dhare of common stock \ \ percent. A new issue would have a floatation cost of 6 percent of the

$1,110

market value. The bonds mature in 12 years. The firm's average tax rate is 30 percent and its marginal tax rate is 22 percent.\ b. A new common stock issue that paid a

$1.80

dividend last year. The par value of the stock is

$15

, and earnings per share have grown at a rate of 8 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

$24

, but 8 percent flotation costs are anticipated.\ c. Internal common equity when the current market price of the common stock is

$48

. The expected dividend this coming year should be

$3.20

, increasing thereafter at an annual growth rate of 11 percent. The corporation's tax rate is 22 percent.\ a. What is the firm's after-tax cost of debt on the bond?\

%

(Round two decimal places.)