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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. New shares could be sold for the same price, but flotation costs would amount to $6 per share. A $15 million bank line of credit is available with an interest rate of 9 percent. The firm's tax rate is 34%. What is the firm's cost of capital if their capital structure consists of 60% (external) equity and 40% bank loans?

  • 13.21%
  • 14.60%
  • 12.58%
  • 15.20%
  • 11.98%

Reference no: EM131179576

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