Northwest Utility Company faces increasing needs for capital Fortunately, it has an Aa3 credit rating The corporate tax rete is 35 porcent. 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 56 percent annually and this should continue in the future. Northwest's common stock is selling at $66 per share, and the company will pay a $8.50 per share dividend (0) The company's $100 proferred stock has been yielding 10 percent in the current market Flotation costs for the company have been estimated by its investment banker to be $400 for preferred stock The company's optimum capital structures 35 percent debt 15 percent preferred stock and 50 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 Data on Bond Issues Moody's Yield to Issue Rating Price Maturity Utilities Southwest electric power 1/4 2023 A2 $905.18 8.143 Pacific bell - 3/2005 A3 193.25 Pennsylvania power & light--1/2 2022 980.66 8.99 Industriels Johnson & Johnson 6 3/4 2023 Asa 500.24 8.5 Dillard's Department Stores - 1/8 2023 A2 Marriott Corp.10.2015 02 1.045.10 9.59 8.93 A2 980.92 8.55 a. Compute the cost of debt, Kg (Use the accompanying toble---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 it b. Compute the cost of preferred stock, K, (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Cost of proferred stock c. Compute the cost of common equity in the form of retained comings, K. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Cost of common quy 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 Cont Debt Preferred stock Common equity Weighted average cost of capital