A) A 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 isue 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 per share. Bad Boys, Inc., expected 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. 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 cost of capital?
B) If Bad Boys, Inc., raises capital using 30% debt, 5% preferred stock, and 65% common stock, and 65% common stock, what is Bad Boys cost of capital?
C) On page 457, your textbook details the term Cannibalization. In your own words, identify two corporations that have delt with cannibalization and what steps were taken to overcome the cannibalization?