ABC would like to expand and have a capital structure of:
10 million preferred stock
30 million debt
60 million common equity
ABC would like to expand, in order to do so they must issue new debt with a 12% coupon rate, $1,000 par value, that have 15 year maturities. The floatation costs are 2% per bond.
Preferred stock will cost ABC 11% after taxes.
ABC's common stock currently sells for $22 a share and next year will pay a quarterly dividend of $0.25 per share. If the stock dividends are expected to continue to grow at a rate of 4% per year for the foreseeable future.
ABC's tax rate is 35%.
Calculate the weighted average cost of capital.