Question $4$

Assume the LMN Engineering Corporation $($LMN$),$ a virtual engineering development firm, has a

capital structure that is comprised of $60\%$ common equity and $40\%$ debt. In order to finance several

capital projects, LMN will raise USD$1\mathrm{.}6$ million by issuing common equity and debt in proportion to

its current capital structure. The debt will be issued at par with a $9\%$ coupon and flotation costs on the

equity issue will be $3\mathrm{.}5\%.$ LMN$\text{'}$s common stock is currently selling for USD$21\mathrm{.}40$ per share, and its

last dividend was USD$1\mathrm{.}80$ and is expected to grow at $7\%$ forever. The company's tax rate is $40\%.$

What is LMN$\text{'}$s weighted average cost of capital $($WACC$)$ based on the cost of new capital?

$(20$ marks$)$