Plug N’ Play Inc. is considering financing a project as part of its regular capital budgeting process. The company wants to reevaluate its cost of capital for the upcoming projects. The company uses...

Plug N’ Play Inc. is considering financing a project as part of its regular capital budgeting process. The company wants to reevaluate its cost of capital for the upcoming projects. The company uses all the three components of capital for raising its fund; debt, preferred and common equity maintaining a target capital structure of 30%, 20%, and 50%. The company’s corporate tax is
40%. Based on the above information, answer the following questions:
a. If the company would be able to issue new 20-year debt with a cost of 10%, what is the after-tax component cost of the new debt?
b. It can issue perpetual preferred stock at a price of $40 a share. The issue is expected to pay a constant annual dividend of $5.00 a share. The floatation cost on the issue is estimated to be 5 percent. What is the component cost of the new preferred stock?