Humble Manufacturing is interested in measuring its overall cost of capital. The firm is in 40% tax bracket. Debt: The firm can raise an unlimited amount of debt by selling $1,000, 10%, 10 year binds which annual interest payments will be made. To sell the issue, a average discount of $30 per bond would have to be given. The firm must pay flotation cost of $20 per bond.

Preferred Stock: The firm can sell 11% preferred stock at its $100 per share per value. The cost of issuing and selling the stock is expected to be $4 per share.

Common Stock: The firm's commont stock is currently selling for $80 per share. The firm expects to pay cash dividend of $6 per share next year. The firm's dividend have been growing at an annual rate of 6% and this rate will continu indefinitely.

What is the firm's cost of capital?

Source of capital weight Longterm debt 40% Preferred stock 15% Common stock 45%