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Calculate the cost of common equity

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Reference no: EM133014192

Company X has the following capital structure, which it considers to be optimal: 

Debt =33%,?Preferred stock = 28%,?Common equity = 39%  

Company X's tax rate is 25% and investors expect earnings and dividends to grow at a constant rate of 6.5% in the future. Company X is expected to pay a dividend of $4.40 per share next year, and its stock currently sells at a price of $55 per share. 

Company X can obtain new capital in the following ways: 

  • Preferred:  New preferred stock with a dividend of $13 can be sold to the public at a price of $109 per share. 
  • Debt: Debt can be sold at an interest rate of 11%. 

Calculate the following: 

a. Cost of Common equity?? 

b. Cost of Preferred Equity? 

c. Cost of debt? 

d. Weighted Average?Cost of Capital?(WACC)

Reference no: EM133014192

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