Parlour Corporation has a target capital structure of 35% bond financing, 25% preferred stock

financing, and 40% common equity financing. The cost of bonds is 9%, the cost of preferred

stock is 11%, the cost of retained earnings is 14%, and the cost of a new issue of common stock

is 15%. Parlour forecasts it will retain $3,750,000 of new earnings in the coming year.

a)What is Parlours weighted-average cost of capital (WACC) when it uses retained earnings as its source of common equity financing?

b)Where is the break in Parlours cost of capital schedule.

c)What is Parlours weighted-average cost of capital (WACC) after it switches to new

common stock as its source of common equity financing?