Q22.

Northwest Utilly Company faces Increasing needs for capital. Fortunately, It has an Aa3 credit rating. The corporate tax rate is 40 percent. Northwest's treasurer is trying to determine the corporation's current weighted average cost of capital in order to assess the profitability of capltal budgeting projects. Historically, the corporation's earnings and dividends per share have increased about 10.3 percent annually and this should continue in the future. Northwest's common stock is selling at $82 per share, and the company will pay a $4.40 per share dividend (D1). The company's $132 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 $4.00 for preferred stock. The company's optimum capital structure is 35 percent debt, 25 percent preferred stock, and 40 percent common equity in the form of retained earnings. Refer to the following table on bond issues for comparative ylelds on bonds of equal risk to Northwest. a. Compute the cost of debt, Kd. Note: Do not round Intermedlate calculations. Input your answer as a percent rounded to 2 declmal places. b. Compute the cost of preferred stock, Kp. Note: Do not round Intermedlate calculations. Input your answer as a percent rounded to 2 decimal places. c. Compute the cost of common equity in the form of retalned earnings, Ke. Note: Do not round Intermedlate calculations. Input your answer as a percent rounded to 2 decimal places. d. Calculate the welghted 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