22.A-Rod Manufacturing Company is trying to calculate its costof capital for use in making a capital budgeting decision. Mr.Jeter, the vice-president of finance, has given you the followinginformation and has asked you to compute the weighted average costof capital.

The company currently has outstanding a bond with a 11.5 percentcoupon rate and another bond with an 9.1 percent rate. The firm hasbeen informed by its investment banker that bonds of equal risk andcredit rating are now selling to yield 12.4 percent. The commonstock has a price of $69 and an expected dividend(D₁) of $1.89 per share. The historical growthpattern (g) for dividends is as follows:

$	1.44
	1.58
	1.73
	1.89

The preferred stock isselling at $89 per share and pays a dividend of $8.50 per share.The corporate tax rate is 30 percent. The flotation cost is 2.0percent of the selling price for preferred stock. The optimalcapital structure for the firm is 25 percent debt, 20 percentpreferred stock, and 55 percent common equity in the form ofretained earnings.

a. Compute the historical growth rate. (Donot round intermediate calculations. Round your answer to thenearest whole percent and use this value as g. Input youranswer as a whole percent.)

	Growthrate %

b. Compute the cost of capital for theindividual components in the capital structure. (Use therounded whole percent computed in part a for g. Do notround any other intermediate calculations. Input your answers as apercent rounded to 2 decimal places.)

	WeightedCost Debt % Preferred stock Common equity

c. Calculate the weighted cost of each sourceof capital and the weighted average cost of capital. (Donot round intermediate calculations. Input your answers as apercent rounded to 2 decimal places.)

	WeightedCost Debt % Preferred stock Common equity Weighted average cost ofcapital %

1