New Ideas Inc. currently has 30,000 of its 9% semi-annual coupon bonds outstanding (Par value =1000). The bonds will mature in 15 years and are currently priced at $1,340 per bond. The firm also has an issue of 1 million preferred shares outstanding with a market price of $11.00. The preferred shares offer an annual dividend of $1.20. 3New Ideas Inc. also has 2 million shares of common stock outstanding with a price of $30.00 per share. The firm is expected to pay a$3.20 common dividend one year from today, and that dividend is expected to increase by 7 percent per year forever. The firm typically pays floatation costs of 2% of the price on all newly issued securities. If the firm is subject to a 35 percent marginal tax rate, then what is the firm’s weighted average cost of capital?
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