BF is looking expand its existing operations. Prior to an investment decision, BF must determine its appropriate discount rate. The following information relates to BF existing (book value) capital structure.

• Debentures (Original maturity 18 yrs.) $20,000,000
• Preferred shares $4,000,000
• Common shares $8,000,000
• Retained earnings $18,000,000
• Total $50,000,000

The yield on 91-day Government of Canada Treasury Bills is currently 11.78%. The debentures, which have been outstanding for three years, have a coupon rate of 14%. Current market yields on this risk security are currently about 12.5%. Flotation costs would be 2% of the issue price.

The preferred shares with a fixed dividend rate of 7% currently trade at a market value of $3,000,000. Flotation expenses of a new issue of preferreds would be 3% of the issue price.

The common shares, of which there are 5 million outstanding, are currently priced at $5.00 per share. The current dividend is $0.10 per share. BHs beta is 1.2 and its projected growth rate is 16% annually. Flotation expenses would be 5% of the existing share price.

Required

Assuming a tax rate is 41%,calculate the WACC using market value weightings