(Suggested time:15 minutes; Difficulty level: Easy) (16 marks) Simi Inc. has several bond issues outstanding, each making semi-annual interest payments. The bonds are listed in the following table.

Bond		Coupon Rate				Price Quote				Maturity			Face Value
1			4.00	%			98.58%			4	years		$	65,000,000
2			8.00	%			105.50%			8	years			50,000,000

The company has a beta of 1.2. The company has 200,000 outstanding shares, each traded at $500 in the market. It also has 100,000 preferred shares paying constant annual dividends, currently priced at $35 per share. The most recent dividend on preferred stocks was $2. The risk-free rate is 4% and the expected return on the market portfolio is 9%.

Required:

If the corporate tax rate is 38%, what is the weighted average cost of capital?

Hint: Calculate the market values of the bond issues and use them to calculate the weighted average cost of debt.