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 The target capital structure of Orange Corporation is 40 percent common stock, 10 percent preferred stock, and 50 percent debt. Orange Corporation is issuing new common stock at a market price of $52. Dividends last year were $6.30 and are expected to grow at an annual rate of 6% forever. Flotation costs will be $5 per share. Orange Corporation is issuing a bond. Before–tax cost of debt is 12.87%. The firm’s tax rate is 34%. The preferred stock of Orange Corporation sells for $49 and pays $4.90 in dividends. Flotation costs will be $5 per share.

 

a)

 

What is Orange’s cost of common equity?

 

b)

 

What will be the Orange’s after-tax cost of debt on the bond?

 

c)

 

What is the Orange’s cost of capital for the preferred stock?

 

d)

 

What is the Orange’s weighted average cost of capital?

 

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