Big Boy, Inc. has a capital structure that consists of 70% debt and 30% common equity. The companys equity financing will come from retain earnings. The companys long term bonds trade at $1120 with a 9% Coupon Rate with semi-annual coupon payments and 20 years to maturity. The companys common stock is currently trading at $55 per share and expects a dividend of $2 per share (D1) over the next year. Earnings and dividends are expected to grow at 5% annually. The risk free rate is 4%, the market return is 9% and the companys beta is 1.0. The yield on the Corporate A bond is 6% and the companys tax rate is 25% (using cost of retained earnings and assuming no preferred stock). a. What is the cost of debt? c. Calculate the weighted average cost of capital.

c. Calculate the weighted average cost of capital.

What is the cost of debt