0.74 pts A firm has determined its optimal structure, which is composed of the following...
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0.74 pts A firm has determined its optimal structure, which is composed of the following sources and target market value proportions. xxxx Debt: The firm can sell a 15-year, $1,000 par value, 8 percent bond for $1,050. A flotation cost of 2 percent of the face value would be required in addition to the premium of $50. Common Stock: A firm's common stock is currently selling for $75 per share. The dividend expected to be paid at the beginning of next year is $5. Its dividend payments have been growing at a constant rate for the last five years. Two years ago, the dividend was $3.10. Underwriters think this will be a hot IPO and it can be sold at a premium of $10 per share and the firm must pay $1 per share in flotation costs. Additionally, the firm has a marginal tax rate of 40 percent. The firm's cost of a new issue of common stock is O 24.3% 0 20.2% O 26.7% O 23.2%
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