The Gifts R Us Inc. (GRU) is expecting a substantial jump in sales and needs to add $6 million in assets. Its current balance sheet is shown below. Its current operations are expected to add $1,750,000 to retained earnings during the coming year

Cash	750,000		Accounts Payable	2,000,000
Accounts Receivable	3,000,000		Notes Payable	1,500,000
Inventory	1,500,000		Current Liabilities	3,500,000
Current Assets	5,250,000
			Long-term Debt (6%)	7,000,000
Net Fixed Assets	15,000,000		Preferred Stock	2,000,000
			Common Stock and Retained Earnings	7,750,000
Total Assets	20,250,000		Total Liabilities + Equity	20,250,000

Its current debt, originally issued at par, has a 6% coupon paid semiannually. It has 12 years to maturity and has a market price of $847.53. The current preferred stock (40,000 shares outstanding) carries a dividend of $7.50 per share and is selling in the market at $87 per share. Its common stock (700,000 shares outstanding) is selling in the market at $30 per share. The company expects to pay a common stock dividend of $2.50 per share next year. The dividends are expected to grow at 6% per year for the foreseeable future.

The company can sell new common stock at current market price with a flotation cost of 5%, new preferred stock with a dividend of $8 per share to net $91 per share, and new semiannual coupon bonds with a par value of $1,000 and maturity of 20 years with a coupon rate of 9% to net $1,047.69.

Calculate GRU's weighted average cost of capital assuming that the current capital structure is optimal and answer the following questions? The company's overall tax rate is 40%.

1. What percent of total new financing must come from equity funds?

2. What percent of equity funds must come from new equity?

3. What is the after-tax cost of debt?

4. What is the after-tax cost of preferred stock?

5. What is the average after-tax cost of all equity funds?

6. What is the weighted average cost of capital?