QUESTION 2. Newtron Inc. is going to finance 60% of its new investment project with retained earnings and the rest with the bonds whose cost you have computed above. In the current year dividends distributed per face value is 35%. The company distributes 60% of its profits and uses the rest of the profits in reinvestment. The aveage profitability of assets is 25%, flotation cost per share is equal to 0,50, and the current market price of one share is 12. Compute:

a) The cost of retained earnings. (15 pts.)

b) The weighted average cost of capital (WACC), using the weights given above. (15 pts.)