Lexington Corporation wants to maintain its capital structure of 40% debt and 60% equity. The firm's tax rate is 34%. The firm can issue the following securities to finance the investments: Bonds: Bonds can be issued at a pre-tax cost of 7.1 percent. Bank loans can be issued at a pre-tax cost of 11.0 percent. Common Equity: Some retained earnings will be available for investment. In addition, new common stock can be issued at the market price of $50. Flotation costs will be $3 per share. The recent common stock dividend was $7.34. Dividends are expected to grow at 7% in the future. What is the cost of capital using bonds and internal equity
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Lexington Corporation wants to maintain its capital structure of 40% debt and 60% equity. The firm's...
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