The Jolly Jordan Company has the following capital structure that it considers optimal:

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4. Debt = 40%
6. Preferred Stock = 10%
8. Common Stock = 50%
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12. The firm plans to spend $100,000,000 on new capital projects. The firm has one bond issue outstanding with 15 years to maturity, semiannual payments, coupon rate of 8%, face value of $1,000 per bond and a current price of $1,100. The firm's marginal tax rate is 40%. Preferred stock can be sold with a dividend of $2.75, a par value of $25.00, and a floatation cost of $2.00 per share. Common stock is presently selling at $35.00 per share and new shares can be issued with a $3.00 per share floatation cost. The last dividend paid was $4.00 and the firm expects to grow at a rate of 4% in the foreseeable future. Calculate the firm's net cost of debt.?
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Answer rating: 100% (QA)

To calculate the firms net cost of debt we need to consider the cost of debt and the t... View the full answer