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Western Electric Utility Company faces increasing needs for capital. Fortunately, it has an A (low) credit rating. The corporate tax rate is 30 percent Western's treasurer is trying to determine the corporation's current weighted average cost of capital to assess the profitability of capital budgeting projects. Historically, the corporation's earnings and dividends per share have increased at about a 9.2 percent annual rate Western Electrie's common stock is selling at $65 per share, and the company will pay a $750 per share dividend (O)The company's $98 preferred stock has been ylelding 9 percent in the current market. Flotation costs for the company have been estimated by its investment dealer to be $5.00 for preferred stock. The company's optimum capital structure is 60 percent debt, 10 percent preferred stock, and 30 percent common equity in the form of retained earnings. Refer to the table below on bond issues for comparative yields on bonds of equal risks to Western Electric, maturing in 2038. Data on Bond Issues Yield to Maturity Rating Price 6.65 Issue Utilities: Valnet 6.17,2837 Transcanada 6.65 2038 West Coast Energy 6.93 2939 Industrials: Manulife Financial 5.90 2036 Dillard's Departmental Store 5.39 2037 BBB (high) A (low) A (high) 99.46 103.58 99.96 4.37 6.82 BBB Allow) 99.66 95.83 6.54 6.87 a. Compute the cost of debt, kd (Input your answer as a percent rounded to 2 decimal places.) a. Compute the cost of debt, Kd (Input your answer as a percent rounded to 2 decimal places.) Cost of debt b. Compute the cost of preferred stock, Kp. (Input your answer as a percent rounded to 2 decimal places.) Cost of preferred stock c. Compute the cost of common equity in the form of retained earnings. Ke (Input your answer as a percent rounded to 2 decimal places.) Cost of common equity % d. Compute the weighted average cost of capital (Input your answer as a percent rounded to 2 decimal places.) Weighted cost Debt (ko) Preferred stock (p) Common equity (ke) % * $ Weighted average cost of capital (ka) %

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