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Determine the firm''s cost of capital

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Reference no: EM132900589

Given the following information:

Interest rate9%Tax rate30%Dividend$2.50Common stock on the market $50Growth rate8%Debt ratio40%

a. Determine the firm's cost of capital.

b. If the debt ratio rises to 50 percent and the cost of funds remains the same, what is the new cost of capital?

c. If the debt ratio rises to 60 percent, the interest rate rises to 11 percent, the price of the stock falls to $35 and the company had to issue additional securities with flotation costs of 5%, what is the cost of capital? Why is this cost different?

Reference no: EM132900589

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