DeSimone Inc. has a target capital structure that consists of 30 percent debt, 50 percent common equity, and 20 percent preferred stock. The tax rate is 30 percent. The company has projects in which it would like to invest with costs that total $2,000,000. DeSimone will retain $750,000 of net income this year. The last dividend was $3, the current stock price is $50, and the long-run constant growth rate of the company is 9 percent. If the company raises capital through a new equity issuance, the flotation costs are 10 percent. The cost of preferred stock is 10 percent and the cost of debt is 8 percent. (Assume debt and preferred stock have no flotation costs.) What is the weighted average cost of capital at the firm's optimal capital budget?

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The Answer of DeSimone Inc. has a target capital structure that consists of 30 percent debt, 50 percent common equity, and 20 percent preferred stock. The tax rate is 30 percent. The company has projects in which it would like to invest with costs that total $2,000,000. DeSimone will retain $750,000 of net income this year. The last dividend was $3, the current stock price is $50, and the long-run constant growth rate of the company is 9 percent. If the company raises capital through a new equity issuance, the flotation costs are 10 percent. The cost of preferred stock is 10 percent and the cost of debt is 8 percent. (Assume debt and preferred stock have no flotation costs.) What is the weighted average cost of capital at the firm's optimal capital budget?