The balance sheet that follows indicates the capital structure for Nealon Inc. Flotation costs are (a) 15 percent of market value for a new bond issue, and (b) per share for preferred stock. The dividends for common stock were last year and are projected to have an annual growth rate of 6 percent. The firm is in a 34 percent tax bracket. What is the weighted average cost of capital if the firm's finances are in the following proportions?

Type of Financing

Percentage of Future Financing

Bonds (8%, 1,000 par, 16-year maturity)

38%

Preferred stock (5,000 shares outstanding, 50 par, dividend)

15%

Common equity

47%

Total

100%

a. Market prices are 1,035 for bonds, 19 for preferred stock, and 35 for common stock. There will be sufficient internal common equity funding...