Question

a.  The​ after-tax cost of debt using the​ bond's yield to maturity​ (YTM) is

The​ after-tax cost of debt using the approximation formula is

b.  The cost of preferred stock is

c.  The cost of retained 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

The​ after-tax cost of debt using the approximation formula is:-

=(70+((1000-994.25)/12))/((1000+994.25)/2)*(1-25%) =5.30%

Cost of retained earnings approach:-

Cost of equity approach:-

The growth rate of dividend is calculated using the RATE function as follows:-

=RATE(nper,pmt,pv,fv)

=RATE(10,,-2,3.42)

=5.115%

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