Question: use the following to answer this question: Cde Inc.s current( and optimal) capital structure is 40% debt, 10% preferred stock. and 50% common equity. cde

use the following to answer this question: Cde Inc.s current( and optimal) capital structure is 40% debt, 10% preferred stock. and 50% common equity. cde is 40% tax bracket. the company can issue up to $20000000 in new bonds at par with a 7% coupon rate any subsequent amount must carry a 2% premium to compensate investors for added risk. a new issue of preferred stock would pay an annual dividends of $4 and be priced to net the company $50 per share after the 3$ per share floatation cost. the firm has $21000000 in change in retained earnings for the current period. CDE's common stock trades at $40 per share and the expected dividend on the common stock at t1 is 2. floatation costs on a new common stock issue is $5 per share. the company is growing. at 7% per year. what is the cost of internal common equity?

1) 12%

2) 9%

3)7%

4)5%

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