A firm has determined its optimal structure which is composed of the following sources and target market value proportions, long-term debt 45% and common stock equity 55%.

Debt: The firm can sell a 16-year, $1,000 par value, 11 percent bond for $1,030. A flotation cost of 1 percent of the face value would be required. Additionally, the firm has a marginal tax rate of 35 percent.

Common Stock: the firms common stock is currently selling for $75 per share. The stock must be underpriced by $3 per share, and the flotation costs are expected to amount to $2 per share. The firm expects to pay cash dividends of $4.20 per share next year. The dividends paid on the outstanding stock over the past 5 years (20102014) were as follows:

Calculate the weighted average cost of capital up to the point when retained earnings are exhausted?

Year	Dividend
2014	3.94
2013	3.70
2012	3.42
2011	3.12
2010	3.00