HBM, Inc. has the following capital structure:
Assets $400,000 Debt $140,000
Preferred stock 20,000
Common stock 240,000
The common stock is currently selling for $15 a share, pays a cash dividend of $0.75 per share, and is growing annually at 6 percent. The preferred stock pays a $9 cash dividend and currently sells for $91 a share. The debt pays interest of 8.5 percent annually, and the firm is in the 30 percent marginal tax bracket.
What is the after-tax cost of debt?
What is the cost of preferred stock?
What is the cost of common stock?
What is the firm’s weighted-average cost of capital?