Very Busy Airlines has the following capital structure:

Debt$30,000,000

Preferred Stock$30,000,000

Common Stock$40,000,000

Additional info:

Bond interest (coupon)5%

Yield to maturity (bonds)8%

Price of preferred stock$70

Price of common stock$22

Preferred dividend$7

Common dividend (next)$1

Flotation cost, new common stock$2

Growth rate of dividends8%

The firms tax rate is 30%. Compute the firms weighted average cost of capital [WACC]. (10)

[Hint: First compute weights for debt, preferred stock, and common stock in the capital structure. Then compute their respective component costs. Finally compute the WACC].

ghted average cost of 'ed stock, and common stock in the capital structure. Then compute their respective component costs. Finally compute the WACC]