Question 4 (6 points) DMH Inc. recently hired you to estimate their cost of capital. The firm's capital structure is 50% debt, 30% common stock and 20% preferred stock. The firm has outstanding bonds with 10 years left to maturity and an annual coupon of 8%. The bonds currently trade for $1,147.20. The firm's preferred stocks pays an annual dividend of $6 and each share currently trades for $80. The firm does not plan on issuing new shares of common equity. It will retain earnings instead. Management has no preferred method for calculating the cost of retained earnings but they provide you with the following information: The company expects dividend growth of 3% forever. The common shares are expected to pay a dividend of $2.50 at year- end, and the shares currently trade for $40 each. Also, the company's common stock is risky enough that it commands a premium of 2% over the company's debt. The stock's beta is 1.25, the risk-free rate is 2% and the return on the market is 7%. If the firm faces a flat state-plus-federal tax rate of 25%, what is DMH' cost of capital? Justin Oden: Attempt 1 is risky enough that it commands a premium of 2% over the company's debt. The stock's beta is 1.25, the risk-free rate is 2% and the return on the market is 7%. If the firm faces a flat state-plus-federal tax rate of 25%, what is DMH' cost of capital? 6.94% 6.30% 6.63% 7.40% 6.4%