Here is the condensed 2021 balance sheet for Skye Computer Company (in thousands of dollars):

	2021
Current assets		$	1,750
Net fixed assets			3,250
Total assets		$	5,000
Accounts payable and accruals		$	800
Short-term debt			200
Long-term debt			1,450
Preferred stock (10,000 shares)			250
Common stock (40,000 shares)			1,125
Retained earnings			1,175
Total common equity		$	2,300
Total liabilities and equity		$	5,000

Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity.

After-tax cost of debt: 6%

Cost of preferred stock: 12 %

Cost of retained earnings: 13.04%

Cost of new common stock: ______%

Now calculate the cost of common equity from retained earnings, using the CAPM method.

________ %

What is the cost of new common stock based on the CAPM? (Hint: Find the difference between re and rs as determined by the DCF method, and add that differential to the CAPM value for rs.)

________%

If Skye continues to use the same market-value capital structure, what is the firm's WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock? (Hint: Use the market value capital structure excluding current liabilities to determine the weights. Also, use the simple average of the required values obtained under the two methods in calculating WACC.)

WACC1: _____%

WACC2: _____%