Cost of Capital Practice Problem Klean Kanteen Corporation is interest in measuring its overall cost of capital. The firm is in the 40% tax bracket. Current investigation has gathered the following data: DEBT: The firm can raise debt by selling $1,000-par-value, 10% coupon interest rate, 10-year bonds on which annual interest payments will be made. To sell the issue, an average discount of S30 per bond must be given. The firm must also pay flotations costs of $20 Per bond. Preferred Stock: The firm can sell 11% (annual dividend) preferred stock at its S100-per-share par value. The cost of issuing and selling the preferred stock is expected to be $4 per share. Common Stock Equity: The firm's common stock is currently selling for $80 per share. The firm expects to pay cash dividends of $6 per share next year. The firm's dividends have been growing at an annual rate of 6%, and this rate is expected to continue in the future. The stock will have to be underpriced by $4 per share and flotation costs are expected to amount to $4 per share. A. Calculate the individual cost of each source of financing. (Round to the nearest 0.1%), B. Calculate the firm's weighted average cost of capital using the weights shown in the following table, which are based on the firm's target capital structure proportions (Round to the nearest 0.1%) Solve for both Retained earnings (Common stock) and for New Common Stock Source of Capital Weight Long-Term debt 40% Preferred Stock 15% Common Stock Equity 45% Total 100%