Reference no: EM132481023

Poon noodle house current capital structure is 70 percent equity 25 percent debt and 5 percent preferred stock. This is considered optimal. Poon is considering a 50 million dollar capital budgeting project. During the coming year poon expects to have $15 million of retained earnings available to finance this capital budgeting project. The marginal tax rate is 40 percent. Poon can raise long-term debt at a pretax interest rate of 7 percent. Preferred stock can be sold at a $25 price with a $2 annual dividend. Flotation or issuance cost will be $3 per preferred share. Common stock can be sold at a $20 price. The common dividend is expected to be $3.00 next year. Dividends have been growing at a annual compound rate of 4 percent annually and are expected to grow at that rate into the foreseeable future. Flotation or issuance cost will be $4 per preferred share. Calculate poons weighted average cost of capital that is appropriate to use in evaluations this capital budgeting project.