1) B issued $1,000 30-year bonds 10 years ago at a coupon rate of 9% payable semi-annually. Five thousand bonds were sold at par. Similar bonds are now selling to yield 12%.

2) 20,000 shares of 10% preferred shares were sold 5 years ago at their $100 par value. Similar securities now yield 13%.

3) The company was originally financed with the sale of 1 million shares of common stock at $10 per share. The stock is now selling at $12.50.

Other information:

a) B's income tax rate is 40%.

b) Flotation costs average 10% in the sale of preferred shares.

c) Short-term treasury bills currently yield 7%.

d) An average common share currently yields 13.5%.

e) B's beta is 1.4

Required:

Calculate B's weighted average cost of capital