Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The corporate tax rate is 40 percent. Northwest's treasurer is trying to determine the corporation's current weighted average cost of capital in order to assess the profitability of capital budgeting projects Historically, the corporation's earnings and dividends per share have increased about 78 percent annually and this should continue in the future. Northwest's common stock is selling at $85 per share, and the company will pay a $740 per share dividend (D) The company's $138 preferred stock has been yielding 6 percent in the current market. Flotation costs for the company have been estimated by its investment banker to be $3.00 for preferred stock. The company's optimum capital structure is 55 percent debt, 20 percent preferred stock, and 25 percent common equity in the form of retained earnings. Refer to the following table on bond issues for comparative yields on bonds of equal risk to Northwest. Yield to Maturity Price Data on Bond Issues Moody's Rating Utilities: Southwest electrie pove-7 1/4 2023 A2 Pacitie bell--7 3/8 2025 Pennsylvania power 5 light-- 1/2 2022 A2 Industrials: Johnson & Johnson--6 3/4 2023 Ana Dillard's Department Stores-7 1/8 $1,000.18 912.25 995.66 3.33 9.00 920.24 990.92 1,140.10 0.440 3.77 9.66 Marriott Corp.--10 2015 B2 a. Compute the cost of debt, ka (Use the accompanying table-relate to the utility bond credit rating for yield) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Cost of debt (Do not round intermediate calculations. Input your answer as a percent rounded to 2 b. Compute the cost of preferred stock, K decimal places.) Cost of preferred stock c. Compute the cost of common equity in the form of retained earnings, Ko (Do not round intermediate calculations. Input your answer os a percent rounded to 2 decimal places.) Cost of common equity d. Calculate the weighted cost of each source of capital and the weighted average cost of capital (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost Debt Preferred stock Common equity Weighted average cost of capital