1. Lakes Sailing Company is concerned about its weighted average cost of capital, because the company anticipates future investment projects will be financed. The company's target capital structure is as follows:

W

Debt 30%

Preferred Stock 10%

Common Stock 60%

The company has noncallable bonds with 20 years to maturity. The bonds have a 12% annual coupon and currently sell at a price of $1,273.86.

• The preferred stock has a market value of $1,200 and pays an annual dividend of $120
• The company's investment banker estimates the risk-free rate to be 6.3% and the required return of the market to be 11.35%. The company estimates its beta to be 1.2.
• The company's tax rate is 40%.

What is the company's after-tax cost of each capital component and what is its WACC?