Cost of capitalEdna Recording Studios, Inc., reported earnings available to common stock of

$4,000,000

last year. From those earnings, the company paid a dividend of

$1.29

on each of its

1,000,000

common shares outstanding. The capital structure of the company includes

40%

debt,

20%

preferred stock, and

40%

common stock. It is taxed at a rate of

21%.

a.If the market price of the common stock is

$32

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

$9

per share, what is the company's cost of new common stock

financing?

c.The company can issue

$2.44

dividend preferred stock for a market price of

$35

per share. Flotation costs would amount to

$5

per share. What is the cost of preferred stock

financing?

d.The company can issue

$1,000-par-value,

9%

coupon,

12-year

bonds that can be sold for

$1,270

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?