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Suppose Mullens Corporation is considering three average-risk projects with the following costs and rates of return: Mullens estimates that it can issue debt at a
Suppose Mullens Corporation is considering three average-risk projects with the following costs and rates of return: Mullens estimates that it can issue debt at a rate of rd=10.00% and a tax rate of T=20.00%. It can issue preferred stock that pays a constant dividend of Dp=$15.00 per year and at Pp=$150.00 per share. Also, its common stock currently sells for P0=$18.00 per share. The expected dividend payment of the common stock is D1=$4.50 and the dividend is expected to grow at a constant annual rate of g=5.00% per year. Mullens' target capital structure consists of ws=80.00% common stock, wd=10.00% debt, and wp=10.00% preferred stock. According to the video, the after-tax cost of debt can be stated as . Plugging in the values for rd and (T) yields an after-tax cost of debt of approximately According to the video, the cost of preferred stock can be stated as . Plugging in the values for Dp and Pp yields a cost of preferred stock of of approximately Hint: Assume no flotation costs. According to the video, the cost of common stock can be stated as. Plugging in the values for D1,P0, and g yields a cost of common stock of approximately
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