Retained earnings versus new common stock Using the data for a firm shown in the following? table, calculate the cost of retained earnings and the cost of new common stock using the? constant-growth valuation model. ?(Click on the icon located on the? top-right corner of the data table below in order to copy its contents into a? spreadsheet.)
Projected
Current market Dividend dividend perUnderpricing Flotation cost
price per share growth rateshare next yearper shareper share
$37.00 9?% $1.85 $1.00 $2.00
a. The cost of retained earnings is ___?%. (Round to two decimal? places.)
4. WACC-Book weights and market weights Webster Company has compiled the information shown in the following? table:
Source of Capital Book value Market value After-tax cost
Long-term debt $4,000,000 $3,840,000 8%
Preferred stock 40,000 62,000 11%
Common stock equity 1,060,000 4,812,000 15%
Totals $5,100,000 $8,714,000
a. Calculate the weighted average cost of capital using book value weights.
b. Calculate the weighted average cost of capital using market value weights.
c. Compare the answers obtained in parts a and b. Explain the differences.