Dillon Labs has asked its Financial Manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weight average cost is to be measured by using the following weights: 50% long-term debt, 10% preferred stock and 40% common stock equity (retained earnings, new common stock or both) the firm's tax rate is 30%. Debt: The firm can sell for $970 a 10-year, $1000-par-value bond paying annual interest at 9% coupon rate. A flotation cost of 3% of the par value is required in addition to the discount of $30 per bond.

Preferred stock: 9.5% (annual dividend) preferred stock having a par value of $100 can be sold for $80. An additional fee of $3 per share and must be paid to the underwriters.

Common stock: The firm's common stock is currently selling for $90 per share. The dividend expected to be paid at the end of the coming year (2016) is $3.16. It's dividend payments, which have been approximately 60% of earnings per share in the past five years were shown in the following table:

Yea Dividend
2015 $2.95
2014 $2.76
2013 $2.58
2012 $2.41
2011 $2.25

It is expected that to attract buyers, the new common stock must be under price $8 per share, and the firm must also pay $4 per share in flotation costs. Dividend payments are expected to continue at 60% of earnings. (Assume rr=rs).

Calculate the after-tax cost of debt.
Calculate the cost of preferred stock.
Calculate the cost of common stock.
Calculate the WACC for Dillon labs.

a. The after-tax cost of debt using the bonds yield to maturity YTM is _ _ _ _ _.
b. The cost of preferred stock is _ _ _ _ _.
c. The cost of return earnings is _ _ _ _ _.
The cost of new common stock is _ _ _ _ _.
d. Using the cost of retained earnings, the firm's WACC is _ _ _ _ _.
Using the cost of new common stock, the firm's WACC is_ _ _ _ _.