A company has preferred stock with a current market price of $60 per
share. The preferred stock pays an annual dividend of 5% based on a par value of $100. Flotation costs associated with the sale of preferred stock equal 5% of the market price per share. The company's marginal tax rate is 21%. Therefore, the cost of preferred stock is
Breck Steel, Inc. is investing in a major capital budgeting project that will require the expenditure of $10 million. The money will be raised by issuing $4 million of bonds, $4 million of preferred stock, and $2 million of new common stock. The company estimates its pre-tax cost of debt to be 7%, its cost of preferred stock to be 9%, the cost of retained earnings to be 12%, and the cost of new common stock to be 13%. Breck's marginal tax rate 21%. The weighted average cost of capital of this project is closest to?
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