13.25 WACC for a firm: The Imaginary Products Co. currently has $300 million of market value debt outstanding. The 9 percent coupon bonds (semiannual pay) have a maturity of 15 years and are currently priced at $1,440.03 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $12.00. The preferred shares offer an annual dividend of $1.20, Imaginary also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 5 percent per year forever. If Imaginary is subject to a 40 percent marginal tax rate, then what is the firm's weighted average cost of capital? Number outstanding Capital component Bonds Preffered stock Common stock Coupon rate on debt Current price 300,000 $ 1,440.03 2,000,000 $ 12.00 14,000,000 $ 20.00 9% Coupon frequency (per year) 2 Bond maturity (years) 15 Preferred dividend (annual) $1.20 Expected dividend on common (D) $2.20 Constant annual dividend growth rate (for 5% Marginal tax rate 40% Weighted Capital componer Market Value Weight After-tax cost Cost (%) Bonds $ 300,000.00 0.0010 2.90% Preferred stock $ 24,000,000.00 0.0789 10.00% Common stock $ 280,000,000.00 0.9201 16.00% Total capital (market $ 304,300,000.00 1.0000 WACC