Question $23$

$5$ pts

Assume that a new firm will require $$10,000,000$ in initial capital: $40\mathrm{.}0$ percent as debt and $60\mathrm{.}0$ percent as stock. At the time of issue, the firm's before$-$tax cost of debt will be $5\mathrm{.}00$ percent, the firm's cost of stock will be $14\mathrm{.}00$ percent, and the firm's tax rate will be $40\mathrm{.}0$ percent. Also assume that all cash flows will be perpetuities, that all net income will be paid out to the stockholders as dividends $($zero growth$),$ that there will be no additional investments in current or fixed assets, and that there is no depreciation. Now assume that the firm will have NOPAT of $$1,250,000$ in Years $1$ through infinity. Given this information, and using the method demonstrated in class, determine what the firm's new cost of stock $(r_s)$ will be after equilibrium is achieved.

$12\mathrm{.}5266\%$

$10\mathrm{.}9249\%$

$13\mathrm{.}4054\%$

$11\mathrm{.}9703\%$

$12\mathrm{.}9086\%$