ncome tax rate Capital Gais Tax Rate Assumed long-term sustainable growth rate 40% 15% 5% WACC facts: Barking Dog Corp Cost of Capital Given: Optimal Capital Structure 20% Debt 10% Preferred Equity 70% Common Equity Net income for the coming year: $4,000,000 Use Retained Earnings for common equity until all but $1.5 M are exhausted Dividends policy is to distribute 60% of NI as dividends. Currently 0 retained earnings Borrowing Limits and Interest Rates Amount Borrowed Interest Rate 0 to $1,500,000 6% 9% over $1,5000,000 Use the average of CAPM and Dividends growth model for rRE $66 Common Stock price Dy: Preferred Stock price Dpg: S30 $2 $6 for the oming year 5% for this year Float %; Tax rate: For CAPM: 10% of the market price 40% 8.5% 3.5% 1.05 RF Component costs of capital: per AT k BT k(1-T) up to $1,500,000 borrowed per AT k BT k(1-T) if over $1,500,000 borrowed After-tax cost of debt, AT rd (1) After-tax cost of debt, AT rd (2) Cost of Preferred Stock, rp Using DCF Cost of existing equity (RE), E Using CAPM Cost of existing equity (RE), RE Composite (average) Cost of new equity, rn per the dividend growth model per CAPM per the dividend growth model