Lexington Corporation has a capital structure of 40% debt and 60% common equity. This capital...
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Lexington Corporation has a capital structure of 40% debt and 60% common equity. This capital structure is expected not to change. The firm's tax rate is 34%. The firm can issue the following securities to finance capital investments:
Debt: Capital can be raised through bank loans at a pretax cost of 7.9%. Also, bonds can be issued at a pretax cost of 9.3%.
Common Stock: Retained earnings will be available for investment. In addition, new common stock can be issued at the market price of $74. Flotation costs will be $2 per share. The recent common stock dividend was $5.99. Dividends are expected to grow at 5% in the future.
What is the cost of external equity?
SET YOUR CALCULATOR TO 4 DECIMAL PLACES AND ROUND TO 2 DECIMAL PLACES AT THE END. DO NOT ENTER THE % SIGN. IF YOUR ANSWER IS 7.7011%, FOR EXAMPLE, ENTER 7.70.
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