P9-10 Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for $57.50. The firm expects to pay a $3.40 dividend at the end of the year (2016). The dividends for the past 5 years are shown in the following table. Year 2015 2014 2011 2012 Dided $3.10 292 2.30 2.12 After underpricing and flotation costs, the firm expects to net $52 per share on a new issue, .. Determine the growth rate of dividends from 2011 to 2015. b. Determine the net proceeds, N., that the firm will actually receive. c. Using the constant-growth valuation model, determine the cost of retained asrnings, d. Using the constant-growth valuation model, determine the cost of new como stock. P9-20 Weighted average cost of capital American Exploration, Inc., a natural gas producer, is trying to decide whether to revise its target capital structure. Currently, it targets a 50-50 mix of debt and equity, but it is considering a target capital structure with 70% debt. American Exploration currently has 6% after-tax cost of debt and a 12% cost of common stock. The company does not have any preferred stock outstanding. a. What is American Exploration's current WACC? b. Assuming that its cost of debt and equity remain unchanged, what will be Ameri- can Exploration'WACC under the revised target capital structure? c. Do you think that shareholders are affected by the increase in debt to 70%? If so, how are they affected? Are their common stock claims riskier now? d. Suppose that in response to the increase in debt, American Exploration's share- holders increase their required return so that cost of common equity is 16%. What will its new WACC be in this case? e. What does your answer in part b suggest about the trade-off between financing with debt versus equity