Brook$$s Window Shields Incorporated is trying to calculate its cost of capital for use in a capital budgeting decision. Mr$.$ Glass, the vice president of finance, has given you the following information and has asked you to compute the weighted average cost of capital.

The company currently has outstanding a bond with a $9\mathrm{.}5$ percent coupon rate and another bond with a $6\mathrm{.}4$ percent coupon rate. The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield $10\mathrm{.}5$ percent.

The common stock has a price of $$80$ and an expected dividend $($D$1)$

of $$5\mathrm{.}20$ per share. The firm's historical growth rate of earnings and dividends per share has been $12\mathrm{.}2$ percent, but security analysts on Wall Street expect this growth to slow to $10$ percent in future years.

The preferred stock is selling at $$76$ per share and carries a dividend of $$4\mathrm{.}20$ per share. The corporate tax rate is $30$ percent. The flotation cost is $3\mathrm{.}6$ percent of the selling price for preferred stock. The optimum capital structure is $20$ percent debt, $20$ percent preferred stock, and $60$ percent common equity in the form of retained earnings.