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1. Compute the cost of capital.

Expected Dividend for next year	$4.25
Growth rate of dividends	4%
Current stock price	$56.25
Bond information	Coupon rate = 8%, maturity = 10 years, maturity value =$1,000 and the current price is 1,082.25. Assume interest is paid semiannually.
Debt to equity ratio	0.25
Flotation cost of debt	1.75%
Flotation cost of equity	5.5%
Tax rate	22%