A firm has long term debt with the face value of 50 million rupees and the

maturity of 20 years. The par value of one bond is Rs. 1000. When the bond was

issued then the annual coupon rate was 10%. These bonds pay semiannual coupon

payments. Currently, the yield to maturity on these kind of the bonds are 8%

annually. The total number of common share outstanding for this firm are 3

million, with the current market price of the share is Rs. 20 . The EPS is Rs. 4,

the dividend is Rs. 3 and ROE is 20% for last few years. Lastly, there are 50,000 preferred stocks with

Rs. 100 is the par value. It pays Rs. 2 as quarterly dividends and investor

expects 11% required return. If firm issues new preferred stocks, then

investors require the same return but the floatation cost of issue new PS would

be 5%. What is the weighted average of cost of capital on the basis of the market value weights of the cost of financing ? The

corporate tax rate is 40%.