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  • Apr 22, 2012, 04:31 AM
    prudenceaiyar
    Capital structure
    Long Bean Ltd has the following capital structure, which it considers optimal
    Bond, 7% (now selling at par) $300,000
    Preferred stock, $4.00 (Dividend) $240,000
    Common Stock $360,000
    Retained earnings $300,000
    Dividends on common stock are currently $3 per share and are expected to grow at a constant rate of 6%. Market price per share of common stock is $40, and the preferred stock is selling at $50. The interest on bonds is paid annually. The tax rate is 40%

    Required
    Calculate the cost of bonds
    Calculate the cost of the preferred stock
    Calculate the cost of the retained earnings
    Estimate the weighted average cost of the capital

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