Calculating the WACC

Skye Computer Company: Balance Sheet as of December $31$

$($in thousands of dollars$)$

Current assets

Net fixed assets

Total assets

Accounts payable and accruals

Short$-$term debt

Long$-$term debt

Preferred stock

Common stock

Retained earnings

Total common equity

Total liabilities and equity

Last year's earnings per share

Current price of common stock, $P_0$

Last year's dividend on common stock, $D_0$

Growth rate of common dividend, $g$

Flotation cost for common stock, $F$

Common stock outstanding

a$.$ Calculating the cost of each capital component $($using the DCF method to find

the cost of common equity$)$

After$-$tax cost of debt

Cost of preferred stock

Cost of retained earnings

Cost of new common stock

b$.$ Calculating the cost of common equity from retained earnings, using the CAPM method

Cost of retained earnings

$16\mathrm{.}97\%$

c$.$ Calculating the cost of new common stock based on the CAPM

Flotation cost adjustment

Cost of new common stock

d$.$ Calculating the firm's WACC assuming that $(1)$ it uses only retained earnings for equity and

$(2)$ if it expands so rapidly that it must issue new common stock