As the first task in your finance internship, you have been asked to find the cost of capital (WACC) for a company. The company has two main sources of capital available. The marginal tax rate for the company is 26%.

Common stock:250 000 shares outstanding. The book value per share is $20. However, the company was recently able to issue new stock with the price of $35. The company paid recently out $2.5 as dividends and expects dividends to grow by 4% annually within foreseen future. The risk free interest rate is 2.5%.

Debt: 5 000 discount bonds with 1 000 par value and 5 years to maturity. The bonds currently offer 4% yield to investors.

a)Find the cost of capital (WACC) for the company

b)Provide an explanation about what your result means?