The Ewing Distribution Company is planning a $$60$ million expansion of its chain of discount service stations to several neighboring states. This expansion will be financed, in part, with debt issued with a coupon interest rate of $16$ percent. The bonds have a $10-$year maturity and a $$1,000$ face value, and they will be sold to net Ewing $$981$ after issue costs. Ewing$$s marginal tax rate is $40$ percent.

Preferred stock will cost Ewing $13$ percent after taxes. Ewing$$s common stock pays a dividend of $$4$ per share. The current market price per share is $$10,$ and new shares can be sold to net $$9$ per share. Ewing$$s dividends are expected to increase at an annual rate of $4$ percent for the foreseeable future. Ewing expects to have $$12$ million of retained earnings available to finance the expansion.

Ewing$$s target capital structure is as follows:

Debt $20\%$

Preferred stock $5$

Common equity $75$

Calculate the weighted cost of capital that is appropriate to use in evaluating this expansion program. Use Table II and Table IV to answer the questions. Round your answer to one decimal place.