Calculate Weighted Average Cost of Capital (WACC) for the company.?

Question

A public limited company has the following capital structure, which it considers to be optimal: Debt = 25% , preferred stock = 15% and common stock = 60%.
The company’s tax rate is 40% and investors expect earnings and dividends to grow at a constant rate of 6% in the future. The company paid a dividend of Rs.3.60 per share last year (D0 ), and its stock currently sells at a price of Rs.60 per share.
The risk free rate of return in the market is 6%, the market risk premium is 5%, and the company has beta equal to 1.3.
All these terms would apply to new security offerings:
Preferred stock: New preferred stock could be sold to the public at a price of Rs.100 per share, with a dividend of Rs.9. Ignore flotation costs.
Debt: Debt could be obtained at an interest rate of 9%.
Required:

Calculate Weighted Average Cost of Capital (WACC) for the company.
(Hints: Use CAPM for calculating required rate of return on common stocks)

Answer 1

Market return km=6+5=11%
risk free rate krf = 6%
beta=1.3
required rate of return ks=krf+beta(km - krf)
= 6+1.3(11 - 6)= 12.6%
Cost of debt = 9%
Cost of Preferred stock=9/100=9%
tax rate = 40%
WACC=0.25x0.09(1-0.4)+0.15x0.09+0.126x0.6=
=10.26%