The firm recently paid a dividend of 2 per share on its

Question

Ross and Sons Inc. has a target capital structure that calls for 40 percent debt, 10 percent preferred stock, and 50 percent common equity. Its bonds have a 10 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,000. The firm's current after-tax cost of debt is 6 percent, and it can sell as much debt as it wishes at this rate.  The firm's preferred stock currently sells for $90 a share and pays a dividend of $10 per share; however, the firm will net only $80 per share from the sale of new preferred stock.  Ross' common stock currently sells for $40 per share, but the firm will net only $34 per share from the sale of new common stock.  The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10 percent per year.  Assume the firm has sufficient retained earnings to fund the equity portion of its capital budget. The firm's marginal tax rate is 40 percent.  What is the firm's   

1. Component cost of debt?
2. Cost of retained earnings?
3. Cost of newly issued common stock?
4. Cost of newly issued preferred stock?
5. Weighted average cost of capital using the cost of retained earnings since the firm has sufficient retained earnings to fund the equity portion of its capital budget?