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 10.3 percent annually and this should continue in the future. Northwest's common stock is selling at $82 per share, and the company will pay a $4.40 per share dividend (0) The company's $132 preferred stock has been ylelding 7 percent in the current market. Flotation costs for the company have been estimated by its investment banker to be $4.00 for preferred stock The company's optimum capital structure is 35 percent debt, 25 percent preferred stock, and 40 percent common equity in the form of retained earnings Refer to the following table on bond issues for comparative ylelds on bonds of equal risk to Northwest Price Yield to Maturity Data on Bond Issues Moody's Issue Rating Utilities: Southwest electric power--7 1/4 2023 Aa2 Pacific bell--7 3/8 2025 Aas Pennsylvania power & light-- 1/2 2022 A2 Industrials: Johnson & Johnson--6 3/4 2023 Aaa Dillard's Department Stores--7 1/8 2023 AZ Marriott Corp.--1e 2015 B2 $985.18 909.25 980.66 8.54% 8.83 8.77 890.24 960.92 1,125.10 B.88% 8.33 9.88 a. Compute the cost of debt, Kd (Use the accompanying table-relate to the utility bond credit rating for yleld.) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Cost of debt 90 b. Compute the cost of preferred stock. Kp (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Cost of preferred stock % 11 c. Compute the cost of common equity in the form of retained earnings, Ke (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Cost of common oquity % d. Calculate the weighted cost of each source of capital and the welghted average cost of capital (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost 1% Dobt Proferred stock Common equity Weighted average cost of capital 0.001%