Barton Industries expects that its target capital structure for raising funds in the future for its capital budget will consist of 40% debt, 5% preferred stock, and 55% common equity. Note that the firm's marginal tax rate is 25%. Assume that the firm's cost of debt, rd, is 10.3%, the firm's cost of preferred stock, rp, is 9.5% and the firm's cost of equity is 12.9% for old equity, rs, and 13.2% for new equity. Requried:
a. What is the firm's weighted average cost of capital (WACC1) if it uses retained earnings as its source of common equity?
b. What is the firm s weighted average cost of capital (WACC2) if it has to issue new common stock?