1. Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 10% preferred stock, and 50% common stock equity (retained earnings, new common stock, or both). The firms tax rate is 40%.

Debt: The firm can sell for $980 a 10-year, $1,000-par-value bond paying annual interest at a 10% coupon rate.

Preferred stock: The company's preferred stock sells for $98 a share and pays an annual dividend of $8 a share.

Common stock: The firms common stock is currently selling for $90 per share. The firm expects to pay cash dividends of $7 per share next year. The firms dividends have been growing at an annual rate of 6%, and this is expected to continue into the future.

What is the firm's weighted average cost of capital (WACC)?