A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions. (15 point)

Source of Capital	Target Market Proportions
Long-term debt	40%
Preferred stock	5
Common stock equity	55

Debt:The firm can sell a 20-year, $1,000 par value, 7 percent bond for $985. A flotation cost of 2 percent of the face value would be required in addition to the discount of $15.

Preferred Stock:The firm has determined it can issue preferred stock at $62 per share par value. The stock will pay a $7.00 annual dividend. The cost of issuing and selling the stock is $2.50 per share.

Common Stock:A firm's common stock is currently selling for $40 per share. The dividend expected to be paid at the end of the coming year is $4.80. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $3.35. It is expected that to sell, a new common stock issue must be underpriced $1 per share and the firm must pay $1 in floatation costs. Additionally, the firm's marginal tax rate is 25 percent.

Calculate the firms weighted average cost of capital assuming the firm has exhausted all retained earnings.