Question
The following information applies to the next three problems. J. Ross and Sons Inc. has a target capital structure that calls for 40 percent debt,
The following information applies to the next three problems. J. Ross and Sons Inc. has a target capital structure that calls for 40 percent debt, 10 percent preferred stock, and 50 percent common equity. The firm's current after-tax cost of debt is 6 percent, and it can sell as much debt as it wishes at this rate. The firm's preferred stock currently sells for $90 per share and pays a dividend of $10 per share; however, the firm will net only $80 per share from the sale of new preferred stock. Ross's common stock currently sells for $40 per share. The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10 percent per year. 21. What is the firm's cost of newly issued preferred stock, rps? A. 10.0% B. 12.5% C. 15.5% D. 16.5% E. 18.0% 22. What is the firm's cost of common stock, rs? A. 10.0% B. 12.5% C. 15.5% D. 16.5% E. 18.0% 23. What is the firm's weighted average cost of capital (WACC)? A. 9.5% B. 10.3% C. 10.8% D. 11.4% E. 11.9%
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