Reconsider Problem 18. Management has decided that the $5 million raised through stock should be split between common stock and preferred stock. Common stock will be used to raise $3,000,000 and preferred stock $2,000,000.

The characteristics of the common stock will not change as a result of the preferred stock offering. The preferred stock will sell for $100/share, pay an annual dividend of $5/share, and have a cost of selling of $6 per share. The loan and the bonds remain unchanged. Determine the new weighted average cost of capital.

Data from problem 23 

Due to the need for expanded production, Wilson and Wilson Company decides to build a new factory. The company decides to fund the investment from the sources listed below.

The loan has a before-tax effective annual rate of 10.25 percent. The bonds have an after-tax effective annual rate of 7 percent. The stock price is stable and is currently trading at $200/share with a $14 annual dividend. Wilson and Wilson is in a 35 percent tax bracket and pays taxes annually. 

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Source Funding Loan $3,750,000 Bonds $750,000 Common Stock $5,000,000 Retained Earnings $500,000