Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights 40% long-term debt, 10% preferred stock, and 50% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 21%.

Debt: The firm can sell for $1020 a 10-year, $1,000-par-value bond paying annual interest at a 7.00% coupon rate. A flotation cost of 3% of the par value is required.

Preferred stock: 8.00% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $2 per share must be paid to the underwriters.

Common stock: The firm's common stock is currently selling for $59.43 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.70 ten years ago to the $4.00 dividendpayment, Upper D0, that the company just recently made. If the company wants to issue new new common stock, it will sell them $1.50 below the current market price to attract investors, and the company will pay $2.00 per share in flotation costs.

a.The after-tax cost of debt using the bond's yield to maturity (YTM) is

The after-tax cost of debt using the approximation formula is

b.The cost of preferred stock is

c.The cost of retained earnings is

The cost of new common stock is

d.Using the cost of retained earnings, the firm's WACC is

Using the cost of new common stock, the firm's WACC is