Problem:
L$M has target capital structure of 50% common stock, 30% debt and 20% preferred stock. The company wishes to issue new 25 years bond with 11% coupon rate. The flotation cost will be $15 and the bond has to be sold at 5% premium. To issue new preferred stock the company has to pay $1.5 as flotation cost. The market value of preferred stock is $10 and the stock will pay $1.5 dollar dividend. New common stock will cost the company $2.5. The last dividend was $2.8 and the market value is $17. Tax rate is 40%.
Required:
What is the company's weighted average cost of capital if the growth rate is 6.5%? show your all work.