Struggling with this question. Would really appreciate any insight. Thx so much!
Tangerine Inc.’s target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon rate, semiannual interest payments, a current maturity of 20 years, and a market value equal to their par value of $1,000. The firm’s marginal tax rate is 40 percent. The firm’s policy is to use a risk premium of 4 percentage points when using the bond-yield-plus-risk-premium method to determine its cost of retained earnings. What is Tangerine’s component cost of retained earnings?