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Determine the firm cost of capital

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Reference no: EM132406931

Given the following information:

interest rate              8%

tax rate                 30%

dividend                $1

price of the common stock  $50

growth rate of dividends     7%     

debt ratio               40%

  1. Determine the firm's cost of capital.
  2. If the debt ratio rises to 50 percent and the cost of funds remains the same, what is the new cost of capital?
  3. If the debt ratio rises to 60 percent, the interest rate rises to 9 percent, and the price of the stock falls to $30, what is the cost of capital? Why is this cost different?

Reference no: EM132406931

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