Problem:
Crypton electronic has a structure consisting of 37% common stock and 63% debt. A debt issue of $1000 par value, 6.2% bonds that mature in 15 years and pay annual interest will sell for $979. Common stock of the firm is currently selling for $29.87 per share and the firm expects to pay a $2.34 dividend next year. Dividends have grown at the rate of 4.9% per year and are expected to continue to do so for the for the foreseeable future.
Required:
Question: What is Crypton's cost of capital where the firms tax rate is 30%?
Note: Provide support for your rationale.