Target capital structure-marginal cost of equity capital

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allison Engines Corporation has established a target capital structure of 40 % debt and 60% common equity. The firm expects to earn $600 in after tax income during the coming year and it will retain 40% of those earnings. the current market price of the firm's stock is P = $28; its last dividend was D = $2.20 and its expected growth rate is 5%. Allison can issue new common stock at a 15 percent flotation cost. What will Allison's marginal cost of equity capital (not WACC) be if it must fund a capital budget requiring $600 in total new capital?

Reference no: EM131010945

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