Kuhn is considering a project that will require an investment of $20 million. The target capital structure of 58% debt, 6% preferred stock & 36% common equity. There are noncallable bonds outstanding that mature in 5 years, the face value is $1,000 with a coupon rate of 10%, and a market price of $1,050.76. The company can sell shares of preferred stock that pays a dividend of $9 at a price of $92.25 per share. There are no flotation costs incurred when issuing debt or preferred stock. There are no retained earnings to finance this project, new common stock will be issued to fund this project. Common stock is selling for $22.35 per share, the expected dividend to be paid is $1.36. Flotation costs represent 3% of the funds raised. The company will grow at a constant rate of 8.7% and the tax rate is 40%.
What is the WACC for this project?
- 9.00%
- 7.20%
- 9.45%
- 10.35%