Coleman technologies is considering a major expansion program that has been proposed by the company’sinformation technology group. before proceeding with the expansion, the company needs to develop an estimateof its cost of capital. assume that you are an assistant to jerry lehman, the financial vice-president. your first task is to estimate coleman’s cost of capital. lehman has provided you with the following data, which hebelieves may be relevant to your task:

(1) the firm’s tax rate is 40 percent.

(2) the current price of coleman’s 12 percent coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. coleman does not use short-term interest-bearing debt on a permanent basis. new bonds would be privately placed with no flotation cost.

(3) the current price of the firm’s 10 percent, $100 par value, quarterly dividend, perpetual preferred stock is $111.10.

(4) coleman's common stock is selling for $50.00 per share,. it's last dividend (d0) was $4.19, and dividends are expected to grow at a constant rate of 5 percent in the foreseeablefuture. coleman’s beta is 1.2, the yield on t-bonds is 7 percent, and the market risk premium is estimated to be 6 percent. for the bond-yield-plus-risk-premium approach, the firm uses a 4 percentage point risk premium.