The Blossom Products Co. currently has debt with a market value of $250 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15 years and are currently priced at $1,418.61 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $11 per share. The preferred shares pay an annual dividend of $1.20. Blossom also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 6 percent per year forever. If Blossom is subject to a 40 percent marginal tax rate, then what is the firms weighted average cost of capital?

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(a1)

Your answer is correct.

Calculate the weights for debt, common equity, and preferred equity. (Round intermediate calculations and final answers to 4 decimal places, e.g. 1.2514.)

Debt		Correct answer
Preferred equity		Correct answer
Common equity		Correct answer

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(a2)

Calculate the yield to maturity of the debt. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

Yield to maturity of the debt

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