Cannonball Pool Corporation is reviewing its cost of capital. Consider the following information:

The company currently has an outstanding bond with a 10.5% coupon rate. Bonds of equal risk have a market yield of 11.5%. The common stock has a price of $82 and an expected dividend of $2.60 per share. The firms historical growth rate of earnings and dividends per share has been 5%, but expect this growth to be 9 percent in the future. The preferred stock is selling at $78 per share and carries a dividend of $5.20 per share. The flotation costs are 3 percent of the selling price for preferred stock.

Additional Information:

Capital structure is 25% debt, 25% preferred stock, and 50% common equity (retained earnings)

The corporate tax rate is 35 percent.

Required:

Compute the cost of capital for each of the individual components in the capital structure. Calculate the weighted average cost of capital.