Reference no: EM132643417

What is the weighted average cost of capital for Foggy Futures Weather Forecasters? The firm is in the 25% tax bracket. The optimal capital structure is listed below:

Source of CapitalWeightLong-Term Debt45%

Preferred Stock5%

Common Stock50%

?Debt:The firm can issue $1,000 par value, 6% coupon interest bonds with a 15-year maturity date. The bond pays coupons payments semi-annually. The bond has an average discount of $55 and flotation costs of $20 per bond. The selling price is $1,000.

Preferred Stock:The firm can sell preferred stock with a dividend that is 7.25% of the current price. The stock costs $110. The cost of issuing and selling the stock is expected to be $8 per share.

Common Stock:The firm's common stock is currently selling for $70 per share. The firm expects to pay cash dividends of $5 per share next year. The dividends have been growing at 6%. The stock must be discounted by $7, and flotation costs are expected to amount to $5 per share.

Retained Earnings:The firm expects to have enough retained earnings in the coming year to be used in place of any new stock being issued.