The Imaginary Products Co. currenty has debt with a market value of $225 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15 years and are currently priced at $900.37 per bond. The firm also has an issue of 2 million preferred shares oustanding with a market price of $15. The preferred shares pay an annual dividend of $1.20. Imaginary also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected t pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 8 percent per year forever. If Imaginary is subject to a 40 percent marginal tax rate, then what is the firm's weighted average cost of capital. The weights are debt 42.06, preferred equity 5.61, and common equity is 52.34.

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Question: What is the cost of debt?

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