Nine Point Industries wants to maintain its capital structure of 40% debt and 60% equity. The firm’s tax rate is 34%. The firm can issue the following securities to finance the lowestments

Bonde: Mortgage bonds can be issued at a pre-tax cost of 10.4 percent. The firm can obtain bank boans at a pre-taix cost of 10 percent.

Common Equity: Some retained earnings will be available for Investment. In addition, new common stock can be issued at the market price of $75. Flotation costs will be $3 per share. The recent common stock dividend was $6.00. Dividends are expected to grow at 8% in the future.

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What is the cost of capital using bank loans and external equity?
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