=+ST9–1 Individual financing costs and WACC Humble Manufacturing is interested in measuring its overall cost of capital. The firm is in the 21% tax bracket. The company’s financial analysts have gathered the following data:

Debt The firm can raise debt by selling $1,000-par-value, 10% coupon interest rate, 10-year bonds on which annual interest payments will be made.

When these bonds are issued, their market price will be $970. The firm must also pay flotation costs of $20 per bond.

Preferred stock The firm can sell 11% (annual dividend) preferred stock at its $100-per-share par value. Analysts expect that the cost of issuing and selling the preferred stock will be $4 per share.

Common stock The firm’s common stock is currently selling for $80 per share. The firm expects to pay cash dividends of $6 per share next year. The firm’s dividends have been growing at an annual rate of 6%, and this growth will continue in the future. The stock will have to be underpriced by $4 per share, and flotation costs amount to $4 per share.

Retained earnings The firm expects to have $225,000 of retained earnings available in the coming year. Once the firm exhausts these retained earnings, it will use new common stock as the form of common stock equity financing.