Question

A company’s Balance Sheet (in millions)

Assets Liabilities & Equity Current

$ 80 Net

Fixed $120

Total $200

Bonds ($1000 Par) 140

Preferred stocks ($100 Par) 40

Common Stock ($1 par) 20

Total $200

The company's bonds have 10 years to mature, pay 10% coupon rate semi-annually and comparable bonds' YTM is 12%. The company’s applicable tax rate is 40%. The market price of common stock is $12.50 per share. The common stock is constantly growing at a rate of 6%. The same growth rate is expected to continue for long time in the future. The most recent dividend on the common stock was $1.15. The flotation cost for new common stocks is 10%. The market value of the preferred stock is $65 and it pays quarterly dividend of $1.25. The flotation cost on issuing new preferred stock is 7% What is the WACC of the company using the market weights of capital structure (Assuming the company will issue new preferred and common stocks)?

**I know the answer is 13.29%, I need help understanding how to calculate the market weights for debt, preferred stock, and common stock. The cost of common stock is 16.84% and the cost of preferred stock is 8.27%.**

Answer 1