Carling Corporation will raise $1,000,000 to finance an expansion. They plan to raise $500,000 through the sale of bonds, $ 50,000 by issuing preferred stock, $300,000 by issuing Common stock and $150,000 by using retained earnings. The firm's policy is to use a risk premium of 4% When using the bond-yield-plus-risk-premium method to value Retained earnings. The company will have to contract with an investment banker to issue new preferred and new common stock. The firm uses the CAPM approach to value retained earnings, but is willing to consider other options. Its bonds sell for $1,000 have a 8% coupon rate, mature in 20 years and will incur a floatation cost of 5% per bond. The firm could sell, at par, $100 preferred stock which pays a 6% annual dividend, with flotation costs of 5%. Carling's beta is 1.1, the Return on Government Notes is 6%, and the market return is 12%. Carling's has a growth rate of 8% and its current stock price $24.00 with recent dividends of $2.00, per share. Floatation costs are 5% on new issues. The firm's marginal tax rate is 40%.
What is the cost of issuing common stock? ( 14.67 ,19.626, 17.47, 12.56 )
What is the cost of using debt (Bonds) (4.16, 8.54, 9.12, 5.12)
What is the cost of using Retained Earnings valued with the Bond-Yield-Plus-Premium Method. (9.44, 6.56, 12.53 , 14.73)