Estimate The Costs Ofthe Following Sources Of Finance For Falcon Company Ltd Fcl

Estimate the costs of the following sources of finance for Falcon Company Ltd (FCL), who derive part of their income from Canada and have a company tax rate of 36%.

Debt: FCL is issuing a $100 par value bond that pays 9% semi-annual interest and matures in 6 years. Investors are willing to pay $92.50 for the bond. Issue costs will be 12% of market value.

Equity: FCL is issuing new ordinary shares at a market price of $3.45. Dividends last year were 21¢ and are expected to grow at an annual rate of 6% forever. Issue costs will be 7% of market price.  

 Preference shares: FCL $2.00 par value preference shares currently sell for $1.40 and pay a 7% dividend. The net price of the security after issue costs is $1.25