Problem:

A firm requires capital expenditure of $10 million, which will be raised by issuing $3 million of bonds, $1 million of preferred stock, and $6 million of new common stock. The firm estimates its after-tax cost of debt to be 6%, cost of preferred stock to be 8%, and cost of new common stock to be 15%.

Required:

Question: What is the weighted average cost of capital?

A. 9.67%

B. 10.25%

C. 12.85%

D. 11.60%

Note: Please provide full description.