Directions: Answer the following questions in a separate
document. Explain how you reached the answer or show your work if a
mathematical calculation is needed, or both. Submit your assignment
using the assignment link above.
- Bad Boys, Inc. is evaluating its cost of capital. Under
consultation, Bad Boys, Inc. expects to issue new debt at par with
a coupon rate of 8% and to issue new preferred stock with a $2.50
per share dividend at $25 a share. The common stock of Bad Boys,
Inc. is currently selling for $20.00 a share. Bad Boys, Inc.
expects to pay a dividend of $1.50 per share next year. An equity
analyst foresees a growth in dividends at a rate of 5% per year.
The Bad Boys, Inc. marginal tax rate is 35%. If Bad Boys, Inc.
raises capital using 45% debt, 5% preferred stock, and 50% common
stock, what is Bad Boys, Inc.’s cost of capital?
- If Bad Boys, Inc. raises capital using 30% debt, 5% preferred stock, and 65% common stock, what is Bad Boys, Inc.’s cost of capital?
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