Problem 11-26 (Algo) Impact of credit ratings on cost of capltal [LO11-3] Northwest Utility Compony foces incressing needs for capital. Fortunately, it has an A 3 credit rating. The corporate tox rate is 30 percent. Northwest's treasurer is trying to determine the corporation's current weighted aversge cost of capitsl in order to assess the profitsbility of capital budgeting projects. Historically, the corporation's earnings and dividends per share have increased about 7.4 percent annuslly and this should continue in the future. Northweat's common stock is selling at $74 per share, and the company will pay a $5.60 per share dividend (D1). The compony's $116 preferred stock hos been yielding 5 percent in the current morket. Flotetion costs for the compony hove been eatimated by its investment benker to be $2.00 for preferred stock. The compony's optimum capitsl structure is 30 percent debt, 10 percent preferred stock, and 60 percent common equity in the form of retained earnings. Refer to the following table on bond issues for comporative yields on bonds of equal risk to Northvest. a. Compute the cost of debt, Kd (Use the accomponying table-relate to the utility bond credit rating for yield.) Note: Do not round Intermediate calculations. Input your answer as a percent rounded to 2 decimal places. b. Compute the cost of preferred stock, Kp Note: Do not round Intermediate calculations. Input your answer as a percent rounded to 2 decimal places. c. Compute the cost of common equity in the form of retained earnings, Ke. Note: Do not round Intermediate calculations. Input your answer as a percent rounded to 2 decimal places. d. Colculate the weighted cost of each source of copitel and the weighted average cost of capital. Note: Do not round Intermedlate calculations. Input your answers as a percent rounded to 2 decimal places