Your task is to find the cost of capital (WACC) for a company. The company has three sources of capital available. The marginal tax rate for the company is 35%

Debt: 2000 discount bonds with $1000 par value, with 4 years to maturity. Bonds currently offer 5% yield to bondholders.

Preferred stock:14 000 shares outstanding with $90 market price and 5% yield.

Common stock:100 000 shares outstanding with the book value of $20 but currently trading at P/B= 2.0. One may apply CAPM to estimate the cost of equity. Inputs for estimations are: risk-free rate 2.8%, market risk premium 6% and the stock beta is 1.20.

Find the cost of each financing source, capital structure weights for each source and the WACC.