MacLeod Manufacturing Company is trying to calcuate its cost of captial for use in making captial budgeting decisions. Mr. Bailey, the vice presient of finance has given you the following information and has asked you to compute the weighed average cost of capital.
The company is currently has outstanding bond with 10.6% coupon rate and another bond with an 8.2% coupon rate. The firm has been infomed by its investment banker that bonds of equal risk and credit rating are now selling to yield 11.5%. The common stock has a price of $60 and an expected dividend of 1.95 per share. The perferred stock is selling for $80 per share and pays a dividend of 7.60 per share. The corporate tax rate is 30%, and the target (or optimal) capital structure is 25% debt, 10% preferred stock, and 65% common stock. What is MacLeod's weighted average cost of captial.