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Your firm recently paid a dividend of $4 to common stockholders. Dividends are expected to grow at 8% per year for the foreseeable future. The
Your firm recently paid a dividend of $4 to common stockholders. Dividends are expected to grow at 8% per year for the foreseeable future. The current stock price is $54. New shares could be sold for the same price, but flotation costs would amount to $6 per share. Also, the firm can issue 20-year, $1,000 par bonds at a pre-tax cost of 11.4%. The firm's tax rate is 34%. What is the firms cost of capital if their capital structure consists of 60% external equity and 40% bonds?
15.20%
12.58%
11.98%
13.21%
14.60%
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