Due to the need for expanded production, Wilson and Wilson Company decides to build a new factory. The company decides to fund the investment from the sources listed below.

The loan has a before-tax effective annual rate of 10.25 percent. The bonds have an after-tax effective annual rate of 7 percent. The stock price is stable and is currently trading at $200/share with a $14 annual dividend. Wilson and Wilson is in a 35 percent tax bracket and pays taxes annually. Determine the weighted average cost of capital.

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Source Funding Loan $3,750,000 Bonds $750,000 Common Stock $5,000,000 Retained Earnings $500,000