Pregunta: Heavy Metal Corp. is an aluminum manufacturing company that finances its operations with 40 percent debt, 10 percent preferred stock, and 50 percent equity. The interest rate on the company's debt is 11 percent. Preferred shares pay an annual dividend of $2 and sell for $20 a share. The company's common stock is trading at $30 a share, its current dividend

Heavy Metal Corp. is an aluminum manufacturing company that finances its operations with 40 percent debt, 10 percent preferred stock, and 50 percent equity. The interest rate on the company's debt is 11 percent. Preferred shares pay an annual dividend of $2 and sell for $20 a share. The company's common stock is trading at $30 a share, its current dividend is $2 a share, and it is expected to grow at a constant rate of 8 percent per year. Float costs on outside equity are 15 percent of the dollar amount issued, while float costs on preferred stock are 10 percent. The company estimates a WACC of 12.30 percent. Assume that the company will not have enough retained earnings to finance the equity portion of the capital budget. Determine: The company's tax rate. Compare and Analyze: Compare the cost of equity vs. the cost of shares preferences and the debt once the tax rate has been calculated, then explain the difference in costs of the three components