Answer is Option C
As Per Dividend Capitalization Model -
Cost of Equity (Re) = [D1/P0(1-F)] + g
Where,
D1 = Dividend of Next year i.e D0*(1+g)
P0 = Market Price of Equity Share
F = Ratio of Flotation Cost to Issue Price = 4.25/65 = 0.065385
g = Growth Rate
Therefore,
Re = [ 4*(1+8%) / 65 * (1 - 0.065385) ] + 8% = 15.11%
Now, Cost of Debt = 9.5 (1- 21%) = 7.505 %
Cost of Preferred Equity = 11.5%
Therefore Cost of Capital for New Issue in the Same Structure -
COC = 55% * 15.11 + 30% * 7.505 + 15% * 11.5% = 12.28761 % (Option C)
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