Crook is planning a $100 million expansion to be financed with 20% debt, 5% preferred stock...

Crook is planning a $100 million expansion to be financed with 20% debt, 5% preferred stock and the rest by retained earnings.

• The debt consists of 15-year bonds with a coupon rate of 12% paid annually. The face value is $1000 and the bonds are issued at par. (Assume issue costs are negligible).

• The preferred stock pays an annual dividend of $3.50 a share and is sold to the public for $27 a share. Issue costs for preferred are $2 per share.

• Crook expects dividends of $3.68 next year. The growth rate is 8%. Current price of the common stock is $40 per share. Tax rate is 40%. Find weighted average cost of capital.

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