Reference no: EM132492427

Here is the condensed 2019 balance sheet for Sunrise Company (in thousands of dollars):

                                                              2019

Current assets                             $2,000

Net fixed assets                            3,000

Total assets                                $5,000

Accounts payable and accruals        $ 900

Short-term debt                              100

Long-term debt                            1,100

Preferred stock (10,000 shares)         250

Common stock (50,000 shares)        1,300

Retained earnings                          1,350

Total common equity                      $2,650

Total liabilities and equity                 $5,000

Sunrise's earnings per share last year were $3.20. The common stock sells for $55.00, last year's dividend (Do)was $2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Sunrise's preferred stock pays a dividend of $3.30 per share, and its preferred stock sells for $30.00 per share. The firm's before-tax cost of debt is 10%, and its marginal tax rate is 25%. The firm's currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Sunrise's beta is 1.516. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1.2 million.

Use this data to answer the questions in the assignment.

Question A. Calculate the cost of the following capital components (answers should be in % with two decimal points):

the after-tax cost of debt

Question B. Calculate the cost of the following capital components (answers should be in % with two decimal points):

the cost of preferred stock