Question: Debreu Beverages has a capital structure that is 20% debt, 10% preferred stock, and 70% common equity. Pretax cost of debt is 8%, and they

  • Debreu Beverages has a capital structure that is 20% debt, 10% preferred stock, and 70% common equity.
  • Pretax cost of debt is 8%, and they are in a 35% tax Bracket.
  • Preferred stock had a price of $90, a dividend of $5 and a flotation cost of $10 per share.
  • Common Stock has a price of $250, dividend $25, and a growth rate of 3%.

Calculate their cost of Preferred Stock:

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