Stanwell Industries Ltd. is interested in measuring its overall cost of capital. The company has a marginal tax rate of 40%. Investigation by the Financial Manager has produced the following Data. Dividends on common stock are currently $3 per share and are expected to grow at a constant rate of 6 percent. Market price share of common stock is $40, and the preferred stock is selling at $50. Flotation cost on new issues of common stock is 10 percent. The firm can sell a 12-year, $1,000 par value, 7 percent bond for $960. A flotation cost of 2 percent of the face value would be required in addition to the discount of $40. The interest on bonds is paid annually. The firm has the following capital structure, which it considers optimal: 7% Bonds Preferred stock, $5.00 Common stock Retained Earnings $ 300 000 240 000 360 000 300 000 Required: A. Calculate for the firm: $1,200.000 B. i. the before and after-tax cost of bonds. ii. the cost of preferred stock. iii. the cost of retained earnings (or internal equity). iv. the cost of new common stock (or external equity) v. the weighted average cost of capital (WACC). (3 marks) (2 marks) (2 marks) (3 marks) (4 marks) i. ii. Explain why the investor's required return on debt is not equal to the corporation's cost of debt. (3 marks) Outline the primary advantages of the CAPM approach in determining the cost of common equity. (3 marks)