XAFRON Limited has three sources of finance to get fund. It wants to calculate the WACC to make few

investment decisions. Following information is provided to calculate the component cost of capital of bond

and ordinary share and then to calculate weighted average cost of capital for the firm.

The firm issued $7$ years $$100$ bond that can be sold for a net price of $$97\mathrm{.}75.$ The coupon rate is $15\%$ and bond

will be redeemed at $5\%$ premium on maturity. Corporate tax rate is $35\%.$ Apart from that, it issued

irredeemable preferred shares bearing a return of $10\%.$ Face value is $$100$ per share and the issuing price is

$$95.$ So$,$ ultimately the cost of irredeemable preferred share becomes $10\mathrm{.}53\%.$ Also, the ordinary share of

XAFRON sells for $$20.$ It expected that the company will pay a dividend of $$2$ per share next year which will

grow at $7\%$ forever. The capital structure for the firm is as following:

Components Amount $($in USD$)$

Ordinary Shares $(20,000)400,000$

Preference Shares $200,000$

Bonds $300,000$

Find out the weighted average cost of capital for XAFRON Limited.