Question
Stackpool Inc has the following capital structure and is considered to be an optimum. The company has paid a dividend of $2.36 with a growth
Stackpool Inc has the following capital structure and is considered to be an optimum. The company has paid a dividend of $2.36 with a growth rate of 10%. The company's share has a current market price of $23.60 per share. The expected dividend per share next year is 50% of the dividend for the current year. The 16% new debentures can be issued by the company. The company's debentures are currently selling at $96 per debenture. The new 11% preference share can be sold at a net price of $9.15 (face value $10 each). The company's tax rate is 30%
a. Calculate the after tax cost of new debt
b. Calculate the after tax cost of new preference capital
c. Calculate the after tax cost of new Equity capital
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