What is the weighted average cost of capital?

Use the following information for this and the next question. Bean Pharmaceuticals has 1,000,000 shares of common stock with a market price of $35 per share, 225,000 shares of preferred stock with a market price of $98 per share, and 10,000 bonds outstanding which are selling in the market at 97.25 percent of par. The company needs new capital of $12 million to expand its asset base. It has calculated that the after-tax cost of new equity is 12.50% and the cost of new preferred stock is 9.4%. The company’s bonds are yielding 8% in the market. Corporate tax rate is 34%.

What percent of the new expansion funds must be in the form of equity?

a. 14.50%
b. 33.00%
c. 52.40%
d. 100.00%

What is the weighted average cost of capital?

a. 11.30%
b. 10.80%
c. 10.40%
d. 9.70%