What is the firm after-tax cost of debt

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Alpha has 2,500,000 shares of common stock outstanding. Next year's annual dividend is expected to be $1.55 a share. The dividend growth rate is 3 percent. Alpha's stock is currently selling for $15. The market risk premium is 4.5 percent and the rate of return on a 3-month T-bill is 2.29 percent.

Alpha has 15,000 bonds outstanding that mature in 16 years, have a 6 percent coupon, and pay interest semiannually. These bonds have a face value of $1,000 and sell for 95.50 percent of par. Assume the company's tax rate is 38 percent.

Alpha has 500,000 shares of 6.8 percent preferred stock outstanding. Currently, this stock has a market value per share of $50. Assume a par value of $100.

What is the firm's cost of common equity?

What is the firm's after-tax cost of debt?

Reference no: EM132731481

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