Meacham Corp. wants to issue bonds with an 8% coupon rate, a face value of $1,000, and 12 years to maturity. Meacham estimates that the bonds will sell for $1,015 and that flotation costs will equal $15 per bond. Meacham Corp. common stock currently sells for $30 per share. Meacham can sell additional shares by incurring flotation costs of $3 per share. Meacham paid a dividend yesterday of $4.00 per share and expects the dividend to grow at a constant rate of 5% per year. Meacham also expects to have $12 million of retained earnings available for use in capital budgeting projects during the coming year. Meachams capital structure is 40% debt and 60% common equity. Meachams marginal tax rate is 35%.

A. Calculate the after-tax cost of debt assuming Meachams bonds are its only debt.

B. Calculate the cost of new common stock.

C. Calculate the weighted average cost of capital assuming Meachams total capital budget is $30 million. Assume cost of debt (after tax) is R_d, cost of retained earnings is R_re, and cost of new common stock is R_cs.

D. Calculate the cost of retained earnings.