Ink Inc. has decided that the capital it is raising will consist of 10% preferred stock, 50% common stock, and 40% debt. Ink has outstanding 20 year annual, 6% coupon bonds selling for $894. The par value of the bonds is $1,000. Ink’s common stock sells for $50 per share and is expected to grow at 8% and expected to pay a $2 dividend next year. If Ink sells new common it must pay a $5 per share flotation fee. Ink’s preferred stock currently sells for $54, and its annual dividend is $5 per share. If Ink were to sell new preferred stock, it would pay $4 per share as flotation cost. Ink’s tax rate is 40%.
What is Ink’s?
1. After tax cost of debt capital?
2. Cost of preferred stock capital?
3. Cost common stock?
4. Cost of capital?