Determine the cost of preferred stock-cost of common equity

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Reference no: EM132045996

Hiland's optimal or target capital structure has the following weights: Debt 35%, Preferred Stock 15%, and Common Stock 50%. The before tax cost of debt (or yield to maturity) is 7%. The firm's marginal tax rate is 40%. The firm has retained earnings as its primary source of common equity funding and has not incurred flotation costs. Its preferred stock if currently selling for $40 and pays a perpetual dividend of $4.00 per share. The firm is expected to grow at 6% per year in the future. The common stock is currently selling for $16 per share. a) determine the cost of preferred stock b) determine the cost of common equity c) what is the weighted average cost of capital (WACC) for the firm?

Reference no: EM132045996

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