Exactly five years ago, Lee Corp. issued bonds with an original maturity of 25 years. These bonds pay interest semi-annually, and have a fixed coupon rate of 6.5%. These bonds are currently trading for $1070 for each $1000 of face value. The company faces a marginal tax rate of 25%. Lee Corp. had common stock earnings per share (EPS) of $6 for the year just ended. Its retention ratio is consistent at 50%. Analysts expect that the companys earnings and per-share dividends will grow at a constant rate of 4.25% for the foreseeable future. Each share of Lees common stock is currently trading for $65.80. It is estimated that Lee Corp. has a stock volatility that is 25% greater than that of the market portfolio. The yield on 10-year Treasury bonds is 2.55%, and the expected market risk premium (MRP) is 5.25%.

Lees management has surveyed institutional investors and ascertained that they would require a premium of 4% over the firms bond yield in order to be induced to invest in the companys common stock.

Lee Corp. also has some perpetual preferred stock outstanding that pay a fixed (annual) dividend of $9 per share. Each of these shares has a par value of $75, and is currently trading for $108.

A. Estimate Lees marginal cost of common equity.

B. Estimate Lees marginal cost of preferred equity.

*Please solve using an explanation in an Excel file. Thank you!