Allison Engines Corporation has established a target capital structure of 40% debt and 60% equity. The business expects to earn $600 in after-tax income over the next year and will retain 40% of those earnings. the current market price of the company's stock is P = $28; its last dividend was D = $2.20 and its expected growth rate is 5%. Allison can issue new common shares at a float cost of 15 percent. What will be Allison's marginal cost of equity capital (not WACC) if she must finance a capital budget that requires $600 in total new capital?

Answer rating: 100% (QA)

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