The following balance sheet reflects market values of the target proportions of Firm A's capital structure.

Assets $54,380 Debt $20,664 Pref Stk $ 4,894 Com. Stk $28,822

Firm A plans to obtain the financing for its planned projects with the following expected financing sources:

Debt: The firm plans to issue bonds at par that have an annual coupon of 7 percent, paid semiannually and that mature in 20 years. Flotation costs are estimated to be $9.75 per bond. The firm A's marginal tax rate is 39%. Preferred Stock: The firm plans to issue 9% preferred stock with a par value of $70. The shares are expected to sell for $75 and flotation costs are estimated at $2.50 per share.

Common Stock: The firm is expected to have adequate retained earnings available to provide the common stock portion of financing. The most recent dividend, D0 was $3.35 and that dividend is expected to grow at 3 percent per year.

The current share price is $42.75. Hint: Use the dividend discount model (p. 10 in the PP slides) to estimate cost of common stock. Since the source is retained earnings, F = 0. Also, D1 = D0(1 + g). Using this information, estimate Firm A's weighted average cost of capital. Show all calculations for the weights, the component costs of capital, and the WACC (all results to two decimal places). For the cost of debt, list all the keystrokes and values input to the financial calculator, e.g. PV = xxxx, PMT = yyy, etc.