Newington Chemicals has planned capital expenditures of $1,600,000 for the coming fiscal year. The

$1,600,000 is to be financed in the following way:

Debt $600,000

Preferred Stock 200,000

Common Equity 800,000

The bonds have a coupon rate of 13.5% and will sell for par value. The preferred stock is 10%, $100 par.

It sells for par value with $4 per share flotation costs. The common stock of the company sells for $40 per

share with flotation costs of $5.00 per share. It is expected to pay a $3 dividend in the coming year, up 8%

from this year. The company's earnings, dividends, and stock price are expected to grow at about 8%

indefinitely. The company's tax rate is 40%. The Net Income for the Company this year is expected to be

$1,200,000. The dividend payout ratio is 60%. Assume the beginning retained earnings balance = 0.

ALL FORMULAS CAN BE FOUND IN CHAPTER 10 SLIDES OR WACC EXAMPLE IN CONTENT

a) How will the common equity funds of $800,000 be financed?

1) $ amount from Retained Earnings

2) $ amount from Common Stock

b) Calculate the breakpoint for common equity

REFER TO WACC EXAMPLE SLIDES FOR FORMULA

c) Calculate the cost of capital for each of the components:

1)Debt______________

2)Preferred Stock_______________

3)Retained Earnings_______________

4)Common Stock_______________

d) Calculate the WACC