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Find the firm cost of common shares

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Curro Holdings Ltd has a target capital structure that calls for 25% debt, 25% preferred stock, and 50% common equity. The firm's before-tax cost of debt is 8.54%, the tax rate 40% and it can sell as much debt as it wishes at this rate. The firm's preferred stock currently sells for R80 per share and pays a perpetual dividend of R2.65. The firm will, however, only net R67 per share from the sale of new preferred stock. Its common share currently sells for R50 per share. The firm's beta is 0.7, and the market risk premium is 15.3%. The risk-free rate is 6.95%.

Required:

a) Find the firm's cost of common shares, rS

b) Find the newly issued preferred shares, rPS,

c) Find the after-tax component cost of debt, rd

Reference no: EM132660692

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