Sutton, Inc., is evaluating its cost of capital under alternative financing arrangements. It expects to be able to issue

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Sutton, Inc., is evaluating its cost of capital under
alternative financing arrangements. It expects to be able to issue
new debt at par with a coupon rate of 8% and to issue new preferred
stock with a $2.00 per share dividend at $30 a share. The common
stock is currently selling for $25 a share. It expects to pay a
dividend of $1.50 per share next year. Sutton expects dividends to
grow at a rate of 5% per year and Sutton’s marginal tax rate is
40%. Consider the following financial arrangement: Debt=
45%,Preferred Stock=25%, Common Stock= 30% calculate the cost
of capital for Sutton, Inc