A fimm has determined its optimal structure which is composed of the following sources and target market value proportions. Target Market Source of Capital Proportions Long-term debt 60% Common stock equity 40 Debt: The fimm can sell a 15-year $1,000 par value, 8 percent bond for $1,050. A flotation cost of 2 percent of the face value would be required in addition to the premium of $50. Common Stock: A fimm's commonstock is currently selling for $75 per share. The dividend expected to be paid at the end of the coming year is $5. Its dividend payments have been growing at a constantrate forthe last five years. Five years ago, the dividend was $3.10. It is expected thatto sell a new commonstock issue must be underpriced $2 per share and the fim must pay $1 per share in flotation costs. Additionally, the fimmhas a marginal tax rate of 40 percent. Calculate 1) The firm's before-tax cost of debt 2) The firm's after-tax cost of debt 3) The fim's cost of a newissue of common stock 4) The fim's cost of retained earings 5) The weighted average cost of capital up to the point when retainedearrings are exhausted 6) The weighted average cost of capitalifthe fim plans to pay out allofits eamings as dividends Answers