Happy Corporation has the following capital structure, which it considers optimal:

Bonds, (9% coupon)	$ 350,000
Preferred stock, (dividend 3.5% based on a par value of $100)	$ 250,000
Common stock	$ 300,000
Retained Earnings	$ 400,000

Dividends on common stock are recently paid $3.20 per share and are expected to grow at a constant rate of 6%. Market price share of common stock is $55. The preferred stock is selling at $60. Flotation cost on new issues of common stock and preferred stock is $3.00 per share and $1.25 per share respectively. The current price of the corporations non-callable bonds with 20 years remaining to maturity is $1,250. New bonds would be privately placed with no flotation cost. The interest on bonds is paid semi-annually. The companys tax rate is 35%.

1. If Happy Corporation used all the sources to raise its capital, compute its cost of capital based on the inputs provided.