Problem:
Jones Company has a target capital structure of 30% debt, 15% preferred stock, and 55% common equity. The company's after-tax cost of debt is 7%, its cost of preferred stock is 11%, its cost of retained earnings is 15%, and its cost of new common stock is 16%. The company stock has a beta of 1.5 and the company's marginal tax rate is 35%.
Required:
Question: What is the company's weighted average cost of capital if retained earnings are used to fund the common equity portion.
Note: Show supporting computations in good form.