Problem 5 (calculating the market-value-based WACC) A firm has the following balance-sheet figures: Debt: 14% coupon, 15 years to maturity Preferred shares: 12% dividend Common stock: 4,000,000 shares at $5 each Retained earnings SION SIX TING: WORK $ 35,000,000 15,000,000 20,000,000 30,000,000 $100.000.000 The firm's tax rate is 40 percent. Interest on new 20-year debt would be 11 percent, and each $1,000 bond would net the firm $970. Preferred shares would be sold at par to provide a dividend yield of 8 precent, with after-tax issuing and underwriting expenses amounting to 4 percent of par value. Common shares could be sold to an underwriting syndicate at $12.60 per share, which represents a 10 percent discount from the current market price. After-tax issuing and underwriting expenses would be 5 percent of the issue price. Current shareholders expect a yield of 15 percent on their investment. Retained earnings are insufficient to fund anticipated new capital projects. Compute the firm's weighted average cost of capital based on current market-value weights.