Calculation of individual costs and WACC Lang Enterprises is interested in measuring its overall cost of capital. Current investigation has gathered the following data. The firm is in the 30% tax bracket Debt The firm can raise debt by selling $1,000-par-value, 8% coupon interest rate, 17 year bonds on which annual interest payments will be made to all the issue, an average discount of $25 per bond would have to be given. The firm also must pay flotation costs of $25 per bond Preferred stock The firm can 8.5% preferred stock at is $100-per-share par value. The cout of souing and selling the preferred stock is expected to be 87 per share. Preferred stock cat be sold under these terms Common stock The firm's common stock is currently selling for $90 per share. The firm expects to pay cash dividends of 58 per share next year. The firm's dividends have been growing at an annual rate of 8%, and this growth is expected to continue into the future. To sell new shares of common stock, the firm must underprice the stock by $5 per share, and flotation costs are expected to amount to $5 per share. The firm can sell now common stock under these terms Retained earnings When measuring this cost, the firm does not concern itself with the tax bracket or brokerage fees of owners. It expects to have available $140,000 of retained earnings in the coming year; once these retained earnings are exhausted, the firm will use now common stock as the form of common stock equity financing a. Calculate the after-tax cost of debt b. Calculate the cost of proferred stock c. Calculate the cost of common stock d. Calculate the firm's weighted average cost of capital using the capital structure weights shown in the following table, (Round answer to the nearest 0.015) on the icon located on the top-right corner of the data table below in orde its contents into a spreadsheet.) Weight 25 % Source of capital Long-term debt Preferred stock Common stock equity Total 25 50 100% Print Done a. The after-tax cost of debt using the approximation formula is %. (Round to two decimal places.) The after-tax cost of debt using the bond's yield to maturity (YTM) is %. (Round to two decimal places.) b. The cost of preferred stock is %. (Round to two decimal places.) c. The cost of retained earnings is %. (Round to two decimal places.) The cost of new common stock is %. (Round to two decimal places.) d. Using the cost of retained earnings, the firm's WACC is %. (Round to two decimal places.) Using the cost of new common stock, the firm's WACC is %. (Round to two decimal places.)
