Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yieldplus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.00 and it expects dividends to grow at a constant rate g=5.6%. The firm's current common stock price, P0, is $25.00. The current risk-free rate, rrf, =4.9%; the market risk premium, RP1=6.5%, and the firm's stock has a current beta, b,=1.35. Assume that the firm's cost of debt, rd, is 10.02%. The firm uses a 3.5% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-riskpremium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to two decimal places. CAPM cost of equity: Bond yield plus risk premium: % DCF cost of equity: % What is your best estimate of the firm's cost of equity? The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, If the firm will have to issue new common stock, the cost of new common stock should be used in the firm's WACC calculation. Quantitative Problem: Barton Industries expects that its target capital structure for raising funds in the future for its capital budget will consist of 40% debt, 5% preferred stock, and 55% common equity. Note that the firm's marginal tax rate is 25%. Assume that the firm's cost of debt, rd, is 9.9%, the firm's cost of preferred stock, rp, is 9.1% and the firm's cost of equity is 12.5% for old equity, rs, a 13.0% for new equity, re. What is the firm's weighted average cost of capital (WACC 1 ) if it uses retained earnings as its source of common equity? Do not round intermediate calculations. Round your answer to two decimal places. What is the firm's weighted average cost of capital (WACC 2 ) if it has to issue new common stock? Do not round intermediate calculations. Round your answer to two decimal places. %