$(30$ points$).$ Pacific Utilities Company has a present capital structure $($which the company

feels is optimal$)$ of $50$ percent long$-$term debt, $10$ percent of preferred stock, and $40$ percent

common equity. For the coming year, the company has determined that its optimal capital

budget can be externally financed with $$70$ million of $10$ percent first$-$mortgage bonds sold at

par and $$14$ million of preferred stock costing the company $11$ percent. The remainder of the

budget will be financed with retained earnings. The company's common stock is presently

selling at $$25$ a share, and next year's common dividend, $D_1,$ is expected to be $$2$ a share.

The company has $25$ million common shares outstanding. Next year's net income available

to common stock is expected to be $$106$ million. A $5$ percent annual growth in earnings and

dividends is expected for the foreseeable future. The company's marginal tax rate is $40$

percent. Calculate the company's weighted average cost of capital for the coming year.