Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is o be measured by using he following weights: 40% long-term debt 25% preferred stock and 35% oommon stock equity retained earnings, new common stock or both The m's tax rate is 25%. Debt The firm can sell for S950 a 16-year, S1 ,000-par-value bond paying annual interest at a 9.00% coupon rate. A flotation cost of 2% of the par value is required in addition to the discount of $50 per bond. Preferred stock 9.50% (annual dividend) preferred stock having a par value of $100 can be sold for S70. An additional fee of $6 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $80 per share. The dividend expected to be paid at the end of the coming year (2016) is $4.01. Its dividend payments, which have been approximately 40% of eamings per share in the past 5 years were as shown in the following table. It is expected that to attract buyers, new common stock must b underpriced $8 per share, and the firm must also pay $3.00 per share in flotation costs. Dividend payments are expected to continue at 40% of earnings. (Assume that r,- .) a. Calculate the after-tax cost of debt b. Calculate the cost of preferred stock. Year 2015 2014 2013 2012 2011 Dividend $3.79 $3.57 $3.37 $3.18 $3.00