Firm A's most recent dividend was $3 per share and dividends are expected to grow at a 5 percent annual rate indefinitely. The stock sells for $31.5 per share now. The firm has a target capital structure of 75 percent common stock and 25 percent debt. Its cost of debt is 9 percent. The relevant tax rate is 35 percent. 

a) What is Firm A's cost of equity? 

b) What is Firm A's WACC? 

c) If the firm can refinance its debt with preferred stock with a cost of 8 percent. From the perspective of cost minimization, should the firm do it?

Answer rating: 100% (QA)

a To calculate the cost of equity we can use the dividend discount model DDM as follows Cost of Equi... View the full answer