. Check my work Northwest Utility Company faces increasing needs for capital, Fortunately, it has an A37 credit rating. The corporate tax rate is 10 percent. Northwest's treasurer is trying to determine the corporation's current weighted average cost of capital in order to assess the profitability of capital budgeting projects Historically, the corporation's earnings and dividends per share have increased about 73 percent annually and this should continue in the future. Northwest's common stock is selling at $79 per share, and the company will pay a $6,30 per share dividend (Du) The company's $126 preferred stock has been ylelding 4 percent in the current market Flotation costs for the company have been estimated by its investment banker to be $3.00 for preferred stock The company's optimum capital structure is 55 percent debt, 10 percent preferred stock, and 35 percent common equity in the form of retained earnings. Refer to the following table on bond issues for comparative yields on bonds of equal risk to Northwest Data on Blond Issues Moody's Yield to Issue Rating Price Maturity Utilities: Southwest electric power--1/4 2023 Aa2 $ 970.18 8.56% Pacific bell-7 3/8 2025 905.25 8.53 Pennsylvania power & light--8 1/2 2022 A2 965.66 8.45 Industrials: Aaa 860.24 Johnson & Johnson--6 3/4 2023 8.57% A2 Dillard's Department Stores -7 1/8 2023 930.92 Marriott Corp.--10 2015 1,110.10 9.66 Aa3 B2 c. Compute the cost of common equity in the form of retained earnings, K. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Cost of common equity net d. Calculate the weighted cost of each source of capital and the weighted average cost of capital (Do not round Intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost 2.82% 0.41 Debt Preferred stock Common equity Weighted average cost of capital 3.23%