Problem:

Franklin Inc. has 100,000 shares of preferred stock that sells at $97.50 per share. The stock has a $100 par value and pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. Franklin also has 50,000 non-callable bonds that have 20 years to maturity.

The bonds have a 9.25% annual coupon paid semiannually, sell at a price of $1,075, and have a par value of $1,000. The bonds have a 9.25% annual coupon paid semiannually, sell at a price of $1,075, and have a par value of $1,000.

The firms' tax rate is 40%. Franklin has issued 5 million shares of common stock that currently sell for $27.50.

The last dividend paid was $.90 and the stock is expected to grow at 7.00% a year.

Required:

Question: What is Franklin's weighted cost of capital?

Note: Solve the problem and show all work.