Business, 23.11.2019 00:31 becerrarboyv9mf
Southern corporation has a capital structure of 40% debt and 60% common equity. this capital structure is expected not to change. the firm's tax rate is 34%. the firm can issue the following securities to finance capital investments: debt: capital can be raised through bank loans at a pretax cost of 8.5%. also, bonds can be issued at a pretax cost of 10%. common stock: retained earnings will be available for investment. in addition, new common stock can be issued at the market price of $59. flotation costs will be $3 per share. the recent common stock dividend was $3.15. dividends are expected to grow at 7% in the future. what is the cost of capital if the firm uses bonds and issues new common stock?
a. 9.9%
b. 10.3%
c. 12.6%
d. 11.8%
e. 10.4%
Answers: 1
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Southern corporation has a capital structure of 40% debt and 60% common equity. this capital structu...
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