week 10 paper
original work only
Cost of Capital
Instructions
Answer the following questions in a separate document. Explain how you reached the answer or
show your work if a mathematical calculation is needed, or both. Submit your assignment using
the assignment link.
This course requires the use of Strayer Writing Standards. For assistance and information,
please refer to the Strayer Writing Standards link in the left-hand menu of your course. Check
with your professor for any additional instructions.
Please respond to the following:
Bad Boys, Inc. is evaluating its cost of capital. Under consultation, Bad Boys, Inc. expects to
issue new debt at par with a coupon rate of 8% and to issue new preferred stock with a $2.50 per
share dividend at $25 a share. The common stock of Bad Boys, Inc. is currently selling for $20.00
a share. Bad Boys, Inc. expects to pay a dividend of $1.50 per share next year. An equity analyst
foresees a growth in dividends at a rate of 5% per year. The Bad Boys, Inc. marginal tax rate is
35%. If Bad Boys, Inc. raises capital using 45% debt, 5% preferred stock, and 50% common
stock, what is Bad Boys, Inc.s cost of capital?
If Bad Boys, Inc. raises capital using 30% debt, 5% preferred stock, and 65% common stock,
what is Bad Boys, Inc.s cost of capital?
