Orange Corporation

 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?