Manuka Manufacture Company is trying to calculate its cost of capital for use in making a capital budgeting decision. Dr$.$ Jake, the CFO, has asked you to compute the weighted average cost of capital, on the basis of the following information:

The company currently has outstood a bond with a $10\mathrm{.}99$ percent coupon rate and another bond with an $8\mathrm{.}88$ percent rate. The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield $11\mathrm{.}88$ percent. The common stock has a price of $$66$ and an expected dividend $($D$1)$ of $$1\mathrm{.}55$ per share. The historical growth pattern $($g$)$ for dividends is as follows:

$$1\mathrm{.}44$

$$1\mathrm{.}55$

$$1\mathrm{.}69$

$$1\mathrm{.}88$

The preferred stock is selling at $$85\mathrm{.}55$ per share and pays a dividend of $$8\mathrm{.}55$ per share. The corporate tax rate is $39$ percent. The flotation cost is $2\mathrm{.}66$ percent of the selling price for preferred stock. The optimal capital structure for the firm is $31$ percent debt, $7$ percent preferred stock, and $62$ percent common equity in the form of retained earnings.