Newington Chemicals has planned capital expenditures of $1,700,000 for the coming fiscal year. The $1,700,000 is to be financed in the following way: Debt $400,000 Preferred Stock 400,000 Common Equity 900,000 The bonds have a coupon rate of 7% and will sell for par value. The preferred stock is 10%, $100 par. It sells for par value with $5 per share flotation costs. The common stock of the company sells for $55 per share with flotation costs of $5.00 per share. It is expected to pay a $3 dividend in the coming year, up 7%. The company's earnings, dividends, and stock price are expected to grow at 7% indefinitely. The company's tax rate is 40%. The Net Income for the Company this year is expected to be $1,500,000. The dividend payout ratio is 65%. Assume the beginning retained earnings balance = 0.

1) How will the common equity funds of $900,000 be financed - how much will come from R/E vs. C/S?

(a) $ amount from Retained Earnings

(b) $ amount from Common Stock

2) Calculate the breakpoint for common equity.

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

a)Debt

b)Preferred Stock

c)Retained Earnings

d)Common Stock