Problem 11-26 (Algo) Impact of credit ratings on cost of capltal [LO11-3] Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The corporate tax rate is 35 percent. Northwest's treasurer is trying to determine the corporation's current welghted average cost of capltal in order to assess the profitablilty of capltal budgeting projects. Histoncally, the corporation's earnings and dividends per share have increased about 6.2 percent annually and this should continue in the future. Northwest's common stock is selling at $63 per share, and the company will pay a $5.50 per share didend (D) ). The company's $94 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 $5.00 for preferred stock. The company's optimum capital structure is 45 percent debt, 25 percent preferred stock, and 30 percent common equity in the form of retained earnings. Refer to the following table on bond issues for comparatlve yields on bonds of equal risk to Northwest. a. Compute the cost of debt, Kd. (Use the accompanying table-relate to the utility bond credit rating for yleld.) Note: Do not round intermedate calculatlons. Input your answer as a percent rounded to 2 decimal places. b. Compute the cost of preferred stock, Kp. Note: Do not round intermedate calculatlons. Input your answer as a percent rounded to 2 decimal piaces. c. Compute the cost of common equity in the form of retalned earnings, Ke. Note: Do not round intermediate calculatlons. Input your answer as a percent rounded to 2 decimal places. d. Calculate the weighted cost of each source of capital and the weighted average cost of capltal. Note: Do not round intermedlate calculations. Input your answers as a percent rounded to 2 decimal places