2021
Current assets $ 1,750
Net fixed assets 3,250
Total assets $ 5,000

Accounts payable and accruals $ 700
Short-term debt 200
Long-term debt 1,700
Preferred stock (10,000 shares) 300
Common stock (40,000 shares) 1,025
Retained earnings 1,075
Total common equity $ 2,100
Total liabilities and equity $ 5,000
Skye's earnings per share last year were $3.40. The common stock sells for $55.00, last year's dividend (D0) was $2.40, and a flotation cost of 8% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skye's preferred stock pays a dividend of $3.50 per share, and its preferred stock sells for $35.00 per share. The firm's before-tax cost of debt is 9%, and its marginal tax rate is 25%. The firm's currently outstanding 9% annual coupon rate, long-term debt sells at par value. The market risk premium is 6%, the risk-free rate is 7%, and Skye's beta is 1.532. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1.9 million.
Cost of retained earnings: fill in the blank 4