HBM, Inc. has the following capital structure:
Assets 400,000 Debt $140,000
Preferred stock $20,000
Common stock $240,000
The common stock is currently selling for $15 a share, pays a cash dividend of $0.75 per share, and is growing annually at 6%. The preferred stock pays a $9 cash dividend and currently sells for $91 a share. The debt pays interest of 8.5% annually, and the firm is in the 30% marginal tax bracket.
a. What is the after-tax cost of debt?
b. What is the cost of preferred stock?
c. What is the cost of common stock?
What is the firms weighted-average cost of capital