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Based on the information below, calculate the weighted average cost of capital.
Great Corporation has the following capital situation.
One thousand bonds were issued five years ago at a coupon rate of 10%.
They had 25-year terms and $1,000 face values. They are now selling to
yield 9%. The tax rate is 40%
Preferred stock: Two thousand shares of
preferred are outstanding, each of which pays an annual dividend of
$7.50. They originally sold to yield 15% of their $50 face value.
They’re now selling to yield 10%.
Equity: Great Corp has 120,000
shares of common stock outstanding, currently selling at $14.48 per
share. The risk free rate is 3%, market rate of return is 10% and the
Beta is 1.2.