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    Cost of capital

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    Crypton Electronics has a capital structure consisting of 40% common stock and 60% debt. A debt issue of $1,000 par value 6 percent bonds, maturing in 15 years and paying annual interest, will sell for $975. Flotation cost for the bonds will be $15 per bond. Common stock of the firm is currently selling for $30 per share. The firm expects to pay $2.25 dividend next year. Dividends have grown at the rate of 5% per year and are expected to continue to do so for the foreseeable future. Flotation costs for the stock issue are 5% of the market price. What is Crypton's cost of capital where the firm's tax rate is 30%?

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    Solution Summary

    Response helps in estimating cost of capital

    $2.19