Use the following scenario for the next 6 questions:

Coleman Technologies is considering a major expansion program that has been proposed by the companys information technology group. Before proceeding with the expansion, the company must estimate its cost of capital. Suppose you are an analyst with Coleman Technologies and you have been tasked with estimating the different components of cost of capital. The following data has been provided to you to assist with your task.

1. The firms tax rate is 25%.

2. For the bond: a) The current price is $1,153.72. b) The coupon rate is 12%. c) The years to maturity is 15 years. d) New bonds would be privately placed with no flotation cost.

3. For preferred stock: a) The current price is $111.10 b) The dividend rate is 10%. The par value is $100.

4. For common stock: a) The current price is $50 per share. b) The last dividend (D₀) was $4.19. Dividends are expected to grow at a constant annual rate of 5% in the foreseeable future. Ignore flotation costs.

5. Colemans target capital structure is 30% debt, 10% preferred stock, and 60% common equity.

Question: What is the before tax cost of debt?

	a.	10%
	b.	7.5%
	c.	3.5%
	d.	4.0%

6 points

QUESTION 2

1. Use the scenario in question 1 to answer:

What is the after tax cost of debt for Coleman Technologies?

	a.	10.0%
	b.	7.5%
	c.	3.5%
	d.	2.6%

6 points

QUESTION 3

1. Use the scenario in question 1 to answer:

What is the firm's cost of preferred stock?

	a.	5.0%
	b.	6.0%
	c.	9.0%
	d.	4.0%

6 points

QUESTION 4

1. Use the scenario in question 1 to answer:

What is the estimated cost of common stock using the dividend growth approach?

	a.	13.8%
	b.	12.5%
	c.	23.6%
	d.	11.8%

6 points

QUESTION 5

1. Use the scenario in question 1 to answer:

What is Coleman's overall, or weighted average cost of capital? Ignore flotation costs

	a.	12.54%
	b.	11.43%
	c.	10.29%
	d.	9.97%