Project 4. Newington Chemicals has planned capital expenditures of $1,600,000 for the coming fiscal year. The $1,600,000 is to be financed in the following way:

Debt: $400,000 Preferred Stock Common $400,000

Equity $800,000

The bonds have a coupon rate of 9% and will sell for par value. The preferred stock is 10%, $100 par. It sells for par value with $5 per share flotation costs. The common stock of the company sells for $50 per share with flotation costs of $5.00 per share. It is expected to pay a $3 dividend in the coming year, up 9% from this year. The company's earnings, dividends, and stock price are expected to grow at about 9% indefinitely. The company's tax rate is 40%. The Net Income for the Company this year is expected to be $1,300,000. The dividend payout ratio is 60%. Assume the beginning retained earnings balance = 0.

a) How will the common equity funds of $800,000 be financed- how much of the $800,000 will come from R/E vs. C/S?

1) $ amount from Retained Earnings

2) $ amount from Common Stock

b) Calculate the breakpoint for common equity

c) Calculate the cost of capital for each of the components:

1)Debt______________

2)Preferred Stock_______________

3)Retained Earnings_______________

4)Common Stock_______________

d) Calculate WACCw/R/E and WACC w/C/S

WACCwR/E=

WACC w/C/S =