1. A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions.

long term debt 20%

preferred stock 10

common stock equity 70

Debt: The firm can sell a 15-year, $1,000 par value, 12 percent bond for $1050. A flotation cost of 1 percent of the face value would be required.Additionally, the firm's marginal tax rate is 30 percent. Preferred Stock: The firm has determined it can issue preferred stock at $95 per share par value. The stock will pay a $9 annual dividend. The cost of issuing and selling the stock is $4 per share. Common Stock: A firm's common stock is currently selling for $26 per share. The dividend was paid last year $1.69. Its dividend payments have been growing at a 6% constant rate for the last four years. It is expected that to sell, a new common stock issue must be underpriced $3 per share in floatation costs. Calculate the firm's weighted average cost of capital assuming the firm has exhausted all retained earnings.