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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 6.3%. Also, bonds can be issued at a pretax cost of 6.2%.

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 6.3%. Also, bonds can be issued at a pretax cost of 6.2%.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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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 6.3%. Also, bonds can be issued at a pretax cost of 6.2%. Common Stock: Retained earnings will be available for investment. In addition, new common stock can be issued at the market price of $63. Flotation costs will be $5 per share. The recent common stock dividend was $3.92. Dividends are expected to grow at 5% in the future. What is the cost of external equity? PLEASE INPUT THE ANSWER IN PERCENT ROUNDING IT TO 2 DECIMALS. DO NOT INCLUDE % SIGN, E.G., INSTEAD OF 9.9922% INPUT 9.99
Transcribed Image Text: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 6.3%. Also, bonds can be issued at a pretax cost of 6.2%. Common Stock: Retained earnings will be available for investment. In addition, new common stock can be issued at the market price of $63. Flotation costs will be $5 per share. The recent common stock dividend was $3.92. Dividends are expected to grow at 5% in the future. What is the cost of external equity? PLEASE INPUT THE ANSWER IN PERCENT ROUNDING IT TO 2 DECIMALS. DO NOT INCLUDE % SIGN, E.G., INSTEAD OF 9.9922% INPUT 9.99
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