Question - Your firm recently paid a dividend of $4 to common stockholders. Dividends are expected to grow at 8% per year for the foreseeable future. The current stock price is $54.
Preferred stock would pay a 12% dividend on a $50 par value. The stocks would sell for par value less flotation costs of $2 per share. Wellington has a marginal tax rate of 34 percent.
What is the firm's cost of capital if their capital structure consists of 60% equity and 40% preferred stock?