Problem:
You were hired as a consultant to Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of retained earnings is 13.25%, and the tax rate is 40%. The firm will not be issuing any new stock.
Required:
Question 1: What is Quigley's WACC?
Note: Provide support for your rationale.