Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $4,200,000 last year. From those earnings, the company paid a dividend of $1.22 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 45 % debt, 20 % preferred stock, and 35 % common stock. It is taxed at a rate of 28 %.

a. If the market price of the common stock is $31 and dividends are expected to grow at a rate of 9 % per year for the foreseeable future, what is the company's cost of retained earnings financing?

b. If underpricing and flotation costs on new shares of common stock amount to $6 per share, what is the company's cost of new common stock financing? c. The company can issue $2.34 dividend preferred stock for a market price of $33 per share. Flotation costs would amount to $4 per share. What is the cost of preferred stock financing?

d. The company can issue $1 comma 000 -par-value, 12 % coupon, 14 -year bonds that can be sold for $1,290 each. Flotation costs would amount to $40 per bond. Use the estimation formula to figure the approximate after-tax cost of debt financing?

e. What is the WACC?

Using the cost of retained earnings

Using the cost of new common stock