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The Ewing Distribution Company is planning a $ 6 0 million expansion of its chain of discount service stations to several neighboring states. This expansion
The Ewing Distribution Company is planning a $ million expansion of its chain of discount service stations to several neighboring states. This expansion will be financed, in part, with debt issued with a coupon interest rate of percent. The bonds have a year maturity and a $ face value, and they will be sold to net Ewing $ after issue costs. Ewings marginal tax rate is percent.
Preferred stock will cost Ewing percent after taxes. Ewings common stock pays a dividend of $ per share. The current market price per share is $ and new shares can be sold to net $ per share. Ewings dividends are expected to increase at an annual rate of percent for the foreseeable future. Ewing expects to have $ million of retained earnings available to finance the expansion.
Ewings target capital structure is as follows:
Debt
Preferred stock
Common equity
Calculate the weighted cost of capital that is appropriate to use in evaluating this expansion program. Use Table II and Table IV to answer the questions. Round your answer to one decimal place.
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