Alpha Products maintains a capital structure of $40\%$ debt and $60\%$ common equity. To finance its capital budget for next year, the firm will sell $$50$ million of $11\%$ debentures at par and finance the balance of its $$125$ million capital budget with retained earnings. Next year Alpha expects net income to grow $7\%$ to $$140$ million, and dividends also are expected to increase $7\%$ to $$1\mathrm{.}40$ per share and to continue growing at that rate for the foreseeable future. The current market value of Alpha's stock is $$30.$ If the firm has a marginal tax rate of $40\%,$ what is its weighted cost of capital for the coming year?

Question $14$Answer

a$.$

$8\mathrm{.}59\%$

b$.$

$9\mathrm{.}64\%$

c$.$

$6\mathrm{.}6\%$

d$.$

$11\mathrm{.}67\%$