Table 9.2 A firm has determined its optimal structure which is composed of the following sources and target market value proportions. Target Market Source of Capital Proportions Long-term debt 60% Common stock equity 40 Debt: The firm can sell a 15-year $1,000 par value, 8 percent bond for $1,050. A flotation cost of 2 percent of the face value would be required in addition to the premium of $50. Common Stock: A firm's common stock is currently selling for $75 per share. The dividend expected to be paid at the end of the coming year is $5. Its dividend payments have been growing at a constant rate of 10% per year. It is expected that to sell, a new common stock issue must be underpriced $2 per share and the firm must pay $1 per share in flotation costs. Additionally, the firm has a marginal tax rate of 40 percent. (See Table 9.2) The firm's after-tax cost of debt is O 7.7 percent 6 percent 7 percent O 4.6 percent