Peter's Audio Shop has a cost of debt of 7 percent,a cost of equity of 11 percent,and a cost of preferred stock of 8 percent.The firm has 104,000 shares of common stock outstanding at a market price of $20 a share.There are 40,000 shares of preferred stock outstanding at a market price of $34 a share.The bond issue has a total face value of $500,000 and sells at 102 percent of face value.The company's tax rate is 34 percent.What is the weighted average cost of capital for Peter's Audio Shop?

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Step 1 - Calculate the value of the firm's securities. V = E + D + P E = 20 × 104,000 = 2,080,000D = 1.02 × 500,000 = 510,000P = 34 × 40,000 = 1,360,000V = 3,950,000 Step 2 - Calculate the weight of each component of the firm's capital. W_d = 510,000 / 3,950,000 = 12.91% W_e = 2,080,000 / 3,950,000 = 52.66% W_p = 1,360,000 / 3,950,000 = 34.43% Step 3 - Compute the WACC. WACC = W_dK_d 11ea7fdb_fc74_5882_a768_2770c3d3c1aa_TB2902_11 + W_pK_p + W_eK_e WACC = (.1291 × .07 (1 - .34)) + (.3443 × .08) + (.5266 × .11) WACC = 9.14%

Peter's Audio Shop Has a Cost of Debt of 7