Cost of preferred stock and cost of equity

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Reference no: EM131555464

Atlastitsover, Inc. (aka “ALIO”) is evaluating its cost of capital under alternative financing arrangements. In consultation with investment bankers, ALIO expects to be able to issue new debt at par with a coupon rate of 8% and to issue new preferred stock with a $2.50 per share dividend at $25 a share. The common stock of ALIO is currently selling for $20.00 a share. ALIO expects to pay a dividend of $1.50 per share next year. Market analysts foresee a growth in dividends in Invest stock at a rate of 5% per year. Alio's marginal tax rate is 35%.

Calculate the cost of debt, cost of preferred stock and cost of equity.

If ALIO raises capital using 45% debt, 5% preferred stock, and 50% common stock, what is ALIO’s cost of capital?

If ALIO raises capital using 30% debt, 5% preferred stock, and 65% common stock, what is ALIO’s cost of capital?

Reference no: EM131555464

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