Problem 1124 (Algo) Changes in costs and weighted average cost of capital [LO11-1] Brook's Window Shields Incorporated is trying to calculate its cost of capital for use in a capital budgeting decision. Mr, Glass, the vice president of finance, has given you the following information and has asked you to compute the weighted average cost of capital. The company currently has outstanding a bond with a 6.2 percent coupon rate and another bond with a 3.2 percent coupon rate, The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield 7.2 percent. The common stock has a price of $62 and an expected dividend (D1) of $3.30 per share. The firms historical growth rate of eamings and dividends per share has been 11.5 percent, but security analysts on Wall Street expect this growth to slow to 9 percent in future. years. The preferred stock is selling at $58 per share and carries a dividend of $9.75 per share. The corporate tax rate is 30 percent. The flotation cost is 19 percent of the selling price for preferred stock. The optimum capital structure is 50 percent debt, 5 percent preferred stock, and 45 percent common equity in the form of retained eatnings. a. Compute the cost of copital for the individual components in the capital structure Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. b. Calculate the weighted cost of each source of capital and the weighted average cost of capital. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places