Ajax, Inc. is expecting to issue new 10-year, $1,000 par value bond priced at par with a coupon rate of 6% (annual coupon), and to issue new preferred stock with a
$2.00 per share dividend at $20 a share. Common stock is currently selling for $25 a share. Ajax expects to pay a dividend of $2.50 per share next year, and a market
analysis indicates dividends will grow at a constant rate of 3% per year. The marginal tax rate is 40%. a) Calculate the after-tax cost of debt, the cost of
preferred stock and the cost of common stock using the information above. b) Ajax raises capital using a capital structure of 40% debt, 10% preferred stock and 50%
common stock (e.g., market weights), what is the cost of capital for Ajax, Inc.?
