SSS Corporation has established a target capital structure of 40 percent debt and 60 percent...
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SSS Corporation has established a target capital structure of 40 percent debt and 60 percent common equity. The firm expects to earn $600 in before-tax income during the coming year, and it will retain 40 percent of those earnings. The current market price of the firm's stock is P0 = $28; its last dividend was D0 = $2.20, and its expected dividend growth rate is 6 percent. SSS can issue new common stock at a 15 percent flotation cost. Tax rate is 40%. What will SSS's marginal cost of equity capital (not the WACC) be if it must fund a capital budget requiring $600 in total new capital?
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