WACC

Your Company is planning an expansion and needs to develop an estimate of the firm’s cost of capital. You have gathered the following data:

• Tax rate is 40%
• The price of Your Company’s 12 percent coupon, annual payment, noncallable $1,000 face value bonds with 15 years to maturity is $1,153.72. The company does not use short-term debt on a permanent basis. New bonds would be privately placed with no flotation cost.
• The price of Your Company’s 10 percent, $100 par value, quarterly dividend preferred stock is $111.10.
• Your Company’s common stock is selling for $50 per share. Its last dividend was $4.19, and dividends are expected to grow at a constant 5 percent rate.
• If Your Company issues new common stock, it will incur a 15 percent flotation cost.
•Your Company’s target capital structure is 30 percent long-term debt, 10 percent preferred stock, and 60 percent equity.

Determine:
(a) The cost of debt.
(b) The cost of retained earnings.
(c) The cost of new equity.
(d) The WACC using retained earnings.