FIN 486 Expect Success/uophelp.com FIN 486 Expect Success/uophelp.com | Page 27

b) Calculate the cost of preferred
stock

c) Calculate the cost of retained
earnings
d) calculate the cost of common
stock

e) calculate the firms weighted average cost of capital using retained
earnings and the capital structure
weights
f) calculate the firms weighted average cost of capital using new
common stock and the capital structure
weights

a. Cost of debt:
Proceeds from sale of $1,000 par value bond:

b. Cost of preferred stock: rp = Dp ÷ Np
c. Cost of common stock: rj = RF + [bj × (rm − RF)]

d. Weighted average cost of capital: ra = (wi × ri) + (wp × rp) + (ws ×
rn)