Estimate firm weighted average cost of capital

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La Peruz currently has debt with outstanding market value of $500 million. The debt consists of 8% coupon bonds with semiannual coupon payments. It has a maturity of 12 years and are currently priced at $1,100 per bond. The firm also has an issue of 2 million preference shares outstanding with a market price of $10.00 per share. The preference shares pay an annual dividend of $1.50. La Peruz also has 15 million ordinary shares outstanding with a price of $15.00 per share. The firm is expected to pay a $2.50 annual dividend one year from today, and that dividend is expected to increase by 5% per year forever. If La Peruz is subject to a 40% marginal tax rate, then what is the firm's weighted average cost of capital?

Reference no: EM133073754

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