The firm’s investment bankers state that their move into California can be financed through the sale of preferred stock with a 9% dividend rate and also by issuing shares of common stock that would pay a $3 per share dividend. The firm has a beta of 1.25, investors’ require a 13% return on the overall stock market and the risk-free rate is 4%. The company has $200,000 in outstanding senior loans already that pays 6% interest, and decides to issue $100,000 in preferred shares and $200,000 in common stock in order to finance its growth.

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