Problem: Given the following information for Acme Corporation, find the weighted average cost of capital. Assume the company's tax rate is 35%.
Debt: 10,000 9 percent coupon bonds outstanding, $1,000 par value, 12 years to maturity, selling for 103 percent of par; the bonds make annual payments.
Common stock: 100,000 shares outstanding, selling for $65 per share; beta is .95.
Preferred stock: 15,000 shares of 7.5% preferred stock outstanding, currently selling for $80 per share.
Market: 7 percent market risk premium and 5 percent risk-free rate.