Problem 11-23 Weighted average cost of capital [LO11-1]

Given the following information:

Percent of capital structure:

Preferred stock	20	%
Common equity (retained earnings)	60
Debt	20

Additional information:

Corporate tax rate		40	%
Dividend, preferred	$	11.00
Dividend, expected common	$	6.50
Price, preferred	$	107.00
Growth rate		9	%
Bond yield		8	%
Flotation cost, preferred	$	7.50
Price, common	$	91.00

Calculate the weighted average cost of capital for Digital Processing Inc. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Notice that this problem asks for the weighted costs. These are the unweighted costs times the weights. Like this: (kd)(wd) = weighted cost of debt.

	Weighted Cost
Debt		%
Preferred stock
Common equity (retained earnings)
Weighted average cost of capital		%