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?
What is the weighted average cost of capital?