A-Rod Manufacturing Company is trying to calculate its cost ofcapital 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 11.6 percentcoupon rate and another bond with an 9.2 percent rate. The firm hasbeen informed by its investment banker that bonds of equal risk andcredit rating are now selling to yield 12.5 percent. The commonstock has a price of $70 and an expected dividend(D₁) of $1.90 per share. The historical growthpattern (g) for dividends is as follows:

$	1.45
	1.59
	1.74
	1.90

The preferred stock is selling at $90 per share and pays a dividendof $8.60 per share. The corporate tax rate is 30 percent. Theflotation cost is 3.0 percent of the selling price for preferredstock. The optimum capital structure for the firm is 25 percentdebt, 10 percent preferred stock, and 65 percent common equity inthe form of retained earnings.

a. Compute the average historical growth rate.(Do not round intermediate calculations. Round your answerto the nearest whole percent and use this value as g.Input your answer as a whole percent.)

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.)

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.)