12/7/12
Chapter:	9
Problem:	18
INPUTS USED IN THE MODEL
P0		$50.00
Net Ppf		$30.00
Dpf		$3.30
D0		$2.10
g		7%
B-T rd		10%
Skye's beta		0.83
Market risk premium, RPM		6.0%
Risk free rate, rRF		6.5%
Target capital structure from debt		45%
Target capital structure from preferred stock		5%
Target capital structure from common stock		50%
Tax rate		35%
Flotation cost for common		10%
a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock (including flotation costs), and the cost of equity (ignoring flotation costs). Use both the DCF method and the CAPM method to find the cost of equity.
Cost of debt:
B-T rd