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 $6\mathrm{.}0$ percent coupon rate and another bond with a $3\mathrm{.}0$ 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 $7\mathrm{.}0$ percent.

The common stock has a price of $$88$ and an expected dividend $(D_1)$ of $$5\mathrm{.}60$ per share. The firm's historical growth rate of earnings

and dividends per share has been $8\mathrm{.}0$ percent, but security analysts on Wall Street expect this growth to slow to $7$ percent in future

years.

The preferred stock is selling at $$84$ per share and carries a dividend of $$8\mathrm{.}20$ per share. The corporate tax rate is $35$ percent. The

flotation cost is $2\mathrm{.}5$ percent of the selling price for preferred stock. The optimum capital structure is $40$ percent debt, $40$ percent

preferred stock, and $20$ percent common equity in the form of retained earnings.

a$.$ Compute the cost of capital for the individual components in the capital structure.

Note: Do not round intermediate calculations. Input your answers as a percent rounded to $2$ decimal places.

b$.$ Calculate the weighted cost of each source of capital and the weighted average cost of capital.

Note: Do not round intermediate calculations. Input your answers as a percent rounded to $2$ decimal places.