The following information applies to questions 4 through 8.
The Jones Corporation has the following capital structure on its books:
Bonds, 8% (now selling at par) $ 800,000
Preferred stock, $5.00 450,000
Common stock 500,000
Retained earnings 250,000
Dividends on common stock are currently $4 per share and are expected to grow at a constant rate of 10 percent (%). Market price per share of common stock is $44 and the preferred stock is selling at $50 per share. Flotation costs on new issues of common stock is 8 percent (%). The interest on the bonds is paid annually. Jones Corporation tax rate is 40 percent (%).
4. What is Jones Corporation cost of debt?
5. What is the cost of preferred stock?
6. What is the cost of retained earnings?
7. What is the cost of newly issued common stock?
8. What is the weighted average cost of capital for Jones Corporation?