FIGURE 9.2 A firm has determined its optimal structure which is composed of the following sources and target market value pro Target market Source of capital Proportions Long-term debt 60% Common stock equity 40 DEBT: The firm can sell ayear, $1,000 par value, 8 percent bond for $1,050. A flotation cost of 2 percent of the face would be required in addition to the premium of $50. COMMON STOCK: A firm's common stock is currently selling for $75 per share. The dividend expected to be paid end of the coming year is $5. Its dividend payments have been growing at a constant rate for the last five years. Five ago, the dividend was $3.10. It is expected that to sell, a new common stock issue must be underpriced $2 per shar firm must pay $1 per share in flotation costs. Additionally, the firm has a marginal tax rate of 40 percent. 90)The firm's beforetax cost of debt is (See Figure 9.2) 90) A) 7.7 percent. B)12.7 percent. C)10.6 percent. D)11.2 percent. Answer: Explanation: A) B) C) D)