Questions: 1. The firms before-tax cost of debt 2. The firms after-tax cost of debt 3. The firms cost of preferred stock 4. The firms cost of a new issue of common stock 5. The firms cost of retained earnings 6. The weighted average cost of capital up to the point when retained earnings are exhausted 7. The weighted average cost of capital after all retained earnings are exhausted

A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions. Source of Capital Target Market Proportions Long-term debt 20% Preferred stock 10 Common stock equity 70 Debt: The firm can sell a 10-year, P1,000 par value, 7 percent bond for P960. A flotation cost of 2 percent of the face value would be required in addition to the discount of P40. Preferred Stock: The firm has determined it can issue preferred stock at P375 per share par value. The stock will pay a P45 annual dividend. The cost of issuing and selling the stock is P15 per share. Common Stock: A firm's common stock is currently selling for P90 per share. The dividend expected to be paid at the end of the coming year is P8.75. Its dividend payments have been growing at a constant rate of 3 percent. It is expected that to sell, a new common stock issue must be underpriced by P4 per share and flotation costs are expected to amount to P4 per share. Additionally, the firm's tax rate is 30 percent