Takeo Corporation has 5,000,000 shares of common stock outstanding; 300,000 shares of 4.0 percent preferred stock outstanding with 100 par value; and 150,000 bonds with a semiannual coupon of 6.2 percent outstanding, par value 1,000 each. Bonds with similar characteristics are yielding 6.44 percent, pretax.

The common stock currently sells for 53 per share and has a beta of 1.10; the preferred stock currently sells for 104 per share; and the bonds have 12 years to maturity and sell for 98 percent of par.

The market return is 11.30 percent, Treasury Bills are yielding 3.9 percent, and the companys tax rate is 25 percent.

Instructions:

Based on the above information, determine the cost of capital for Takeo Corporation. Explain for what purposes the company should use its cost of capital.