Reference no: EM131954624

Droz's Hiking Gear, Inc. has found that its common equity capital shares have a beta equal to 1.5 while the risk-free return is 8 % and the expected return on the market is 14 %. It has 7-year semiannual maturity bonds outstanding with a price of $767.03 that have a coupon rate of 7 %. It has preferred stock that sells for $25 and pays a dividend of $4. The firm is financed with $120,000,000 of common shares (market value), $45,000,000 of preferred stock, and $80,000,000 of debt. What is the after-tax cost of capital for Droz's, if it is subject to a 35 % marginal tax rate?