Problem 3 Dobson Dairies has a capital structure that consists of 60 percent long-term debt and 40 percent common stock. The companys CFO has obtained the following information:

1. The before-tax yield to maturity on the companys bonds is 8 percent.
2. The companys common stock is expected to pay a $3.00 dividend at year-end, and the dividend is expected to grow at a constant rate of 7 percent a year. The common stock currently sells for $60 a share.
3. Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget.
4. The companys tax rate is 40 percent.

What is the companys weighted average cost of capital (WACC)? Please show step by step