2B4B FOLLOWING IS AN EXCERPT FROM ALBION CORPORATION’S BALANCE SHEET....
131.
CSO: 2B4a
LOS: 2B4b
Following is an excerpt from Albion Corporation’s balance sheet.
Long-term debt (9% interest rate)
$30,000,000
Preferred stock (100,000 shares, 12% dividend)
10,000,000
Common stock (5,000,000 shares outstanding)
60,000,000
Albion’s bonds are currently trading at $1,083.34, reflecting a yield to maturity of 8%.
The preferred stock is trading at $125 per share. Common stock is selling at $16 per
share, and Albion’s treasurer estimates that the firm’s cost of equity is 17%. If Albion’s
effective income tax rate is 40%, what is the firm’s cost of capital?
a.
12.6%.
b.
13.0%.
c.
13.9%.
d.
14.1%.