A firm hаs the fоllоwing cаpitаl structure: Debt: 6%, due in 15 years $9,000,000 Preferred shares: 5% dividend, 100,000 shares $2,000,000 Cоmmon shares:750,000 outstanding $3,000,000 Retained earnings $2,500,000 $16,500,000 The current yields on similar risk bonds is 9%. The bonds pay interest annually. Flotation costs are $25 for each $1,000 bond. The preferred shares are currently trading at $12.50/share. Flotation costs for a new issue would be 5%. The common shares are currently trading at $12 per share. Dividends have been growing at a steady rate of 2%, and this is expected to continue. The last dividend paid was $1.74/share. New shares would be issued at $10/share with flotation costs of 7%. Retained earnings are insufficient to support future activity. The company’s tax rate is 38%. What is the weighted average cost of capital? Show all calculations.
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