Brook$$s Window Shields Incorporated is trying to calculate its cost of capital for use in a capital budgeting decision. Mr$.$ Glass, the vice president of finance, has given you the following information and has asked you to compute the weighted average cost of capital.

The company currently has outstanding a bond with a $12\mathrm{.}5$ percent coupon rate and another bond with a $9\mathrm{.}4$ percent coupon rate. The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield $13\mathrm{.}5$ percent.

The common stock has a price of $$86$ and an expected dividend $($D$1)$ of $$4\mathrm{.}60$ per share. The firm's historical growth rate of earnings and dividends per share has been $7\mathrm{.}0$ percent, but security analysts on Wall Street expect this growth to slow to $6$ percent in future years.

The preferred stock is selling at $$82$ per share and carries a dividend of $$7\mathrm{.}20$ per share. The corporate tax rate is $30$ percent. The flotation cost is $3\mathrm{.}9$ percent of the selling price for preferred stock. The optimum capital structure is $35$ percent debt, $35$ percent preferred stock, and $30$ percent common equity in the form of retained earnings.

a$.$ Compute the cost of capital for the individual components in the capital structure.

b$.$ Calculate the weighted cost of each source of capital and the weighted average cost of capital.