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Problem:

The Ewing Distribution Company is planning a $100 million expansion of its chain of discount service stations to several neighboring states. This expansion will be financed, in part, with debt costing 15.2% before taxes. Ewing's marginal tax rate is 40%. Preferred stock will cost Ewing 14%. Ewing's common stock pays a dividend of $2 per share. The current market price is $15 per share. Ewing's dividends are expected to increase at an annual rate of 5% in the foreseeable future. Ewing's target capital structure is as follows:

Debt 20%,
Preferred stock 5%,
Common equity 75%.

Required:

Question: Calculate the weighted average cost of capital for Ewing Company.

Note: Explain all steps comprehensively.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91149323

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