Question 11.11. Jacobee is planning a $100 million expansion. This expansion will be financed, in part with debt issued with a coupon interest rate of 12%. The bonds have a 20-year maturity and a $1000 face value, and they will be sold to net Wilson Electric $920 after issue costs. Wilson Electrics marginal tax rate is 40%. Preferred stock will cost Jacobee 20% after tax. Jacobee common stock pays a dividend of $4 per share. The current market price per share is $50, and new share can be sold to net $48 per share. Jacobees dividends are expected to increase at an annual rate of 9% for the foreseeable future. Jacobee expects to have $20 million of retained earnings available to finance the expansion. Jacobees target capital structure is as follows: Debt 50% Preferred Stock 10% Common Equity 40% Calculate the weighted average cost of capital that is appropriate to use in evaluating this expansion program. (Points : 3.4)

16.02% 13.11% 12.89% 15.37%