The current capital structure of El-Fagr is as follows: Debt 30% Preferred stocks 30% Common Equity 40% The company would like to keep the current capital structure when it funds the new projects. The company can sell new bonds to fund the selected project. The par value is $1000, the coupon (interest) rate is 9%, and the selling price is $985. Preferred stocks can be issued at a $100 par value, a coupon rate of 10%, thus having a fixed dividend per share Dp = $10, and a selling price of $97. The investment bank that will assist in the selling process will get $2 per share as a commission (flotation cost). The company has $8 million as retained earnings that can be used to fund the new project. Also, the company can issue new common stocks to raise the funds necessary to finance the new project. The stock market shows that the rate of return on Treasury bills issued by the government is 6%, and the average rate of return in the market is 15%. The company expects to pay dividends of $12 (D1) per share starting from the first year. However, the company expects to maintain an average

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To solve this problem we need to calculate the cost of capital for each source of financing and then ... View the full answer