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 issue 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 a share. Bad Boys, Inc. expects to pay a dividend of$1.50 per share next year. An equity analyst foresees a growth in dividends at a rate of5% per year. Bad Boys, Inc. marginal tax rate is 35%. If Bad Boys, Inc. raises capitalusing 45% debt, 5% preferred stock, and 50% common stock, what is Bad Boys cost ofcapital?B. If Bad Boys, Inc. raises capital using 30% debt, 5% preferred stock, and 65%common stock, what is Bad Boys cost of capital?C. Identify two corporations that have dealt with cannibalization and what steps were taken to overcome the cannibalization; include citations and references please.
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