KL

M Inc. (KLM) has a complex capital structure consisting of bonds, common shares

and preferred shares, as follows:

There are 400,000 common shares outstanding, with a current market price of $50

per share. The beta of common shares is 1.15.

There are 250,000 preferred shares outstanding, with a current price per share of

$65 and yielding 5%.

There are 10,000 units of $1,000 bonds outstanding. The bonds pay a

7% coupon

semi

-annually and mature in 20 years. The bonds are currently selling at 102% of

their face value.

Market risk premium and risk

-free rates are 8% and 4%, respectively. KLM

is subject to

tax at a rate of

35%.

Required:

Calculate KLM's weighted average cost of capital. Assume that

there are

NO

flotation

costs.