A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions.

Debt: The firm can sell a 12-year, $1,000 par value, 7 percent bond for $960. A flotation cost of 2 percent of the face value would also be required. Preferred Stock: The firm has determined it can issue preferred stock at $75 per share par value. The stock will pay a $10 annual dividend. The cost of issuing and selling the stock is $3 per share. Common Stock: A firm's common stock is currently selling for $18 per share. The dividend expected to be paid at the end of this year is $1.74. Its dividend payments have been growing at a constant rate for the last four years. Four years ago, the dividend was $1.50. It is expected that to sell, a new common stock issue must be underpriced $1 per share in floatation costs. Additionally, the firm's marginal tax rate is 40 percent. 1) The firm's cost of retained earnings is ________.

A. 13.45%

B. 13.9 %

C. 9.66%

D. 12.4%

2)The firm's cost of a new issue of common stock is ________.

A. 13.45%

B. 14.02%

C.10.24%

D.9.67%

3)The weighted average cost of capital up to the point when retained earnings are exhausted is ________.

A. 10.95%

B. 12.31%

C. 11.74%

D. 7.56%

4) The weighted average cost of capital after all retained earnings are exhausted is ________.

A. 13.6%

B. 11.65%

C. 12.14%

D. 12.76%