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What is the cost of debt capital and common stock

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Reference no: EM132889391

The Alabama Power Company has the following capital structure:

Debt: Common Stock: Preferred Stock:

  • 50000 bonds, each with a face value of $100, annual coupon of 8 percent and a current price of 120. The bonds were issued 10 years ago with an original maturity of 30 years.
  • 100,000 shares at a price of $75 per share. The dividend per share (D1) is $5 and a growth rate of 10 percent.
  • 25,000 shares at a price of $50 per share and a dividend of $3.50 per share

Problem 1. What is the cost of debt capital? Common stock? Preferred stock?

Problem 2. What is the weighted average cost of capital assuming a tax rate of 30 percent?

Reference no: EM132889391

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