Bad Boys, Inc. is evaluating its cost of capital and is considering raising capital through debt, preferred stock, and common stock. It provides information on the expected terms of new debt and preferred stock, current common stock price, expected dividend, and growth rate. It asks what Bad Boys' cost of capital would be if it raised 45% of its capital through debt, 5% through preferred stock, and 50% through common stock, and with a different capital structure of 30% debt, 5% preferred stock, and 65% common stock.

1. 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
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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?