The Wilson Company has worked to identify what they feel is the appropriate capital structure for their firm considering the tax advantages of debt and also the overall risk exposure of the financial leverage. This target capital structure calls for any new financing to follow these proportions: debt, 25%; preferred stock 10%; common stock 65%. The book value capital structure remains at debt 35%, preferred stock 20% and common stock 45%.

The firm believes that its earnings and dividends will grow at a constant rate of 6 percent in the future. They are currently in the 21% tax bracket. An assessment of yields on Treasury bonds finds the risk free rate to be 5%. Given the current financial situation, they feel that it is better to use the long range average market risk premium of about 6% in any analysis. Their beta 1.8. Additional information for the company indicated that no new common stock will be issued so all equity will be internally generated. Based on that information, the firm has estimated that its cost of equity will be 15.8%. They will sell new preferred stock which will have a cost of 10% after considering the flotation costs. In terms of debt, the firm has some bonds already outstanding. The yield to maturity on the firms bonds is 6.65%

Find the firms WACC and then explain what this actually means.