Business, 04.05.2021 22:30 landon6663

Southern Corporation has a capital structure of 40% debt and 60% common equity. This capital structure is expected not to change. The firm's tax rate is 34%. The firm can issue the following securities to finance capital investments: Debt: Capital can be raised through bank loans at a pretax cost of 7.2%. Also, bonds can be issued at a pretax cost of 6.4%. Common Stock: Retained earnings will be available for investment. In addition, new common stock can be issued at the market price of $68. Flotation costs will be $3 per share. The recent common stock dividend was $3.54. Dividends are expected to grow at 7% in the future. Required:
What is the cost of capital if the firm uses bank loans and retained earnings?

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Southern Corporation has a capital structure of 40% debt and 60% common equity. This capital structu...

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