1) Meacham Corp. wants to issue bonds with an 8% coupon rate, a face value of $1,000, and 10 years to maturity. The coupon is paid semi-annually. Meacham estimates that the bonds will sell for $1,050 and that transaction costs will equal $10 per bond. Meacham Corp. common stock currently sells for $25 per share. Meacham can sell additional shares by incurring transaction costs of $2.5 per share. Meacham paid a dividend yesterday of $5.00 per share and expects the dividend to grow at a constant rate of 4% per year. Meacham also expects to have $10 million of retained earnings available for use in capital budgeting projects during the coming year. Meacham's capital structure is 60% debt and 40% common equity. Meacham's marginal tax rate is 35%. Answer the following 4 questions based on the information given above 1) What is the after-tax cost of debt assuming Meacham's bonds are its only debt? By using the present value of bond which is going to be 7.42% The after tax cost of debt-(1-tax rate) * 7.42% 4.82% 2) What is the cost of retained earnings? Share price- Dividend * (1+growth rate) (cost of retained earnings -growth rate) 25 51.04/(cost of retained earnings - 0.04) Cost of retained earnings 0.04 0.208 Cost of retained earnings-24.8% 3) What is the cost of new common stock? 4) What is the weighted average cost of capital assuming Meacham's total capital budget is $40 million