Arizona State University FIN FIN 40720 (Weighted average cost ofcapital) Bane Industries has a capital…

Arizona State University FIN FIN 40720 (Weighted average cost ofcapital) Bane Industries has a capital…

​(Weighted average cost of​ capital)  Bane Industries has a capital structure consisting of 60 percent common stock and 40 percent debt. The​ firm’s investment banker has advised the firm that debt issued with a ​$1,000 par​ value, 8.3 percent coupon​ (interest paid​ semiannually), and maturing in 20 years can be sold today in the bond market for ​$1,125. Common stock of the firm is currently selling for ​$79.91 per share. The firm expects to pay a ​$2.09 dividend next year. Dividends have grown at the rate of 8.3 percent per year and are expected to continue to do so for the foreseeable future. What is ​ Bane’s average cost of capital where the firm faces a tax rate of 34 ​percent?

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a. The​ after-tax cost of debt is

​%. ​(Round to two decimal​ places.)

b.  The cost of common equity is

​%. ​(Round to two decimal​ places.)

c. ​ Bane’s average cost of capital is

​%. ​(Round to three decimal​ p

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