B Co., reported earnings available to common stockholders of P4,200,000 last year. From these earnings dividends were paid for P1.50 per share on its 1,000,000 common outstanding shares. The company has a 40% debt ratio, 10% preferred stock and 50% common stocks in its capital structure. It is in the 40% tax bracket.

The market value of the companys common stock is P56.70 and dividends are expected to grow at a rate of 5% per year. When need arises for external common financing, under-pricing and floatation costs will amount to P7 per share. The Company can issue 10% Preferred Stock par value of P 20, for a market price of P 30.00 with floatation at P 3.00 /share. The company can issue P1,000 par value, 12% coupon bonds that can be sold for P1,500 each. Floatation costs would amount to P60 per bond. The companys retained earnings is sufficient to maintain the optimal capital structure of the company. WACC is nearest to

8%

7%

6%

5%