Wilson Electric is planning a $100 million expansion. This expansion will be financed, in part with debt issued with a coupon interest rate of 11.27%. The bonds have a 15-year maturity and a $1000 face value, and they will be sold to net Wilson Electric $890 after issue costs. Wilson Electrics marginal tax rate is 40%.

Preferred stock will cost Wilson Electric 22% after tax. Wilson Electrics common stock pays a dividend of $5 per share. The current market price per share is $40, and new share can be sold to net $38 per share. Wilson Electrics dividends are expected to increase at an annual rate of 8% for the foreseeable future. Wilson Electric expects to have $15 million of retained earnings available to finance the expansion.

Wilson Electrics target capital structure is as follows:

Debt 55% Preferred Stock 15% Common Equity 30%

Calculate the weighted average cost of capital that is appropriate to use in evaluating this expansion program.

16.37% 14.14% 10.02% 14.50%