Calculation of individual costs and WACCLang Enterprises is interested in measuring its overall cost of capital. Current investigation has gathered the following data. The firm is in the 24% tax bracket. DebtThe firm can raise debt by selling $1,000-par value, 6%coupon interest rate,15-year bonds on which annual interest payments will be made. To sell the issue, an average discount of $50per bond would have to be given. The firm also must pay flotation costs of $25per bond.

Preferred stockThe firm can sell8.5%preferred stock at its$90-per-share par value. The cost of issuing and selling the preferred stock is expected to be$4per share. Preferred stock can be sold under these terms.

Common stockThe firm's common stock is currently selling for$80per share. The firm expects to pay cash dividends of$6.5per share next year. The firm's dividends have been growing at an annual rate of6%, and this growth is expected to continue into the future. The stock must be underpriced by$5per share, and flotation costs are expected to amount to$3per share. The firm can sell new common stock under these terms.

Retained earningsWhen measuring this cost, the firm does not concern itself with the tax bracket or brokerage fees of owners. It expects to have available$100,000of retained earnings in the coming year; once these retained earnings are exhausted, the firm will use new common stock as the form of common stock equity financing.

a.Calculate the after-tax cost of debt.

b.Calculate the cost of preferred 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

Long-term debt 30% Preferred stock 25% Common stock equity 45% Total 100%