McCall Corporation has a capital structure consisting of 55 percent common equity, 30 percent debt, and 15 percent preferred stock. Any debt issues would have a pre-tax cost of 9.5%. Preferred stock can be issued for a cost of 11.5%. Common equity can be issued, but flotation costs of $4.25 per share of common stock would be paid. McCall common stock is currently selling in the market at $65 per share. McCall recently paid a dividend of $4 per share and company earnings and dividends are expected to grow at an annual rate of 8% indefinitely. McCall has a tax rate of 21% and the firm wants to keep its current capital structure. If the firm needs to raise additional equity, what will be the firm's cost of capital?
McCall Corporation has a capital structure consisting of 55 percent common equity, 30 percent debt, and 15 percent
If the firm needs to raise additional equity, what will be the firm's cost of capital?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
