21. You are employed by Big A Chemical, a Fortune 500 firm that is a major producer of chemicals and plastic goods: plastic grocery bags, styrofoam cups, and fertilizers. You are on the corporate staff as an assistant to the Vice-President of Finance. This is a position with high visibility and the opportunity for rapid advancement, providing you make the right decisions. Your boss has asked you to estimate the weighted average cost of capital for the company. Following are balance sheets and some information about CGT.

Assets

Current assets $38,000,000

Net plant, property, and equipment $101,000,000

Total Assets $139,000,000

Liabilities and Equity

Accounts payable $10,000,000

Accruals $9,000,000

Current liabilities $19,000,000

Long term debt (40,000 bonds, $1,000 face value) $40,000,000

Total liabilities $59,000,000

Preferred Stock(900,000 shares) $ 1,800,000

Common Stock 10,000,000 shares) $30,000,000

Retained Earnings $48,200,000

Total shareholders equity $80,000,000

Total liabilities and shareholders equity $139,000,000

You check The Wall Street Journal and see that Big O stock is currently selling for $7.50 per share and that CGT bonds are selling for $889.50 per bond. These bonds have a 7.25 percent annual coupon rate, with semi-annual payments. The bonds mature in twenty years. The beta for your company is 1.31. The yield on a 6-month Treasury bill is 3.5 and the expected return on the stock market is 11.5 percent. Big O is in the 40 percent tax bracket. Floatation costs on new equity are estimated to be $0.68 per share and the expected dividend is $0.75 per share. Dividends have been growing at about 4 percent per year for the past several years. Preferred stock pays a dividend of $0.45 and is currently valued at $4.50 per share and floatation fees are 9% of the market price. The company projects earnings available to common shareholders to be 10 million and depreciation expense to be 2 million dollars. They plan to pay the dividend mentioned above. Using market values as an estimate for the target weights what is the cost of capital and what range(s)of capital spending does the cost of capital computed apply to?