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The This Class Is SoFun Company needs to determine the cost of capital rate to be used in the evaluation of new projects. The company has an existing bond issue: $1,000 par value, 5% coupon rate paid annually, 20-year bond, currently sells for $885.30. There is no preferred stock outstanding. The company's common stock currently sells for $32; the next expected dividend is $1.50; and management believes the earnings and dividends will grow at a constant 4%/year. The company's tax rate is 40%. Management tries to adhere to a capital structure of 30% debt, 70% equity. SHOW ALL WORK FOR FULL CREDIT. a) What is the after-tax cost of debt? Show the TI BAII Buttons. b) What is the estimated cost of equity? c) What is the weighted average cost of capital?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92166954

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