This is a team assignment and my part was to provide the final answer for the discount rate. WACC = 9.09%. I am having trouble explaining how these calculations were made to come up with this answer. I have provided the whole assigment, plus calculations for Bonds, Preferred Stock, and Common Stock. I just need to put into writing the step by step calculations, or analysis of how the answer was determine. I have highlighted in yellow what i need an analysis of. Explain the formula used. Thanks!

You work for an investment banking firm and have been asked by management of Vestor Corporation (not real), a software development company, to calculate its weighted average cost of capital, to use in evaluating a new company investment. The firm is considering a new investment in a warehousing facility, which it believes will generate an internal rate of return of 11.5%. The market value of Vestor's capital structure is as follows: Source of Capital Market Value Bonds $10,000,000 Preferred Stock $2,000,000 Common Stock $8,000,000 To finance the investment, Vestor has issued 20 year bonds with a $1,000 par value, 6% coupon rate and at a market price of $950. Preferred stock paying a $2.50 annual dividend was sold for $25 per share. Common stock of Vestor is currently selling for $50 per share and has a Beta of 1.2. The firm's tax rate is 34%. The expected market return of the S&P 500 is 13% and the 10Year Treasury note is currently yielding 3.5%. Cost of Bonds: Equating the current market price and PVs of (coupon payments +maturity value) 950=(60*(1-(1+r)^-20)/r)+(1000/(1+r)^20 =0.0645 r= 6.45%. After-tax cost = (1-0.34)*0.0645 = 0.04257 The Cost of Bond = 4.26%. Cost of Preferred Stock: Dividend/Market Price =2.5/25 = 0.1 The Cost of Preferred Stock = 10.00% Cost of Common Stock: Cost of Equity=Risk-Free rate+Beta*(Market Interest Rate-Risk-Free Rate) 0.035+(1.2*(0.13-0.035)) = 0.149 The Cost of Prefferred Stock = 14.90% Source of Capital Market Value Proportion Bonds Preferred Stock Common Stock 10000000 2000000 8000000 20000000 0.5 0.1 0.4 1 WACC = 9.09% Cost 0.042 6 0.1 0.149 Prop.*Cost 0.0213 0.01 0.0909