2. IBM is evaluating its cost of capital under alternative financing arrangements. In consultation with investment bankers, IBM expects to be able to issue new debt at par with a coupon rate of 13.5% and to issue new preferred stock with a dividend rate of 17%, par value being $15 per share at $22 a share. The common stock of IBM has a beta of 1.5. The risk-free rate on government securities is 6% and the market return from similar investments is 14%. IBM's marginal tax rate is 25%. If IBM is planning to raise $ 250,000 using debt, $ 150,000 using preferred stock, and $ 400,000 using common stock, what is IBM's cost of capital? (5+5+5+10=25 marks)