Peter’s Audio Shop has a cost of debt of 7 percent, a cost of equity o

Peter’s Audio Shop has a cost of debt of 7 percent, a cost of equity of 11 percent, and a cost of preferred stock of 8 percent. The firm has 104,000 shares of common stock outstanding at a market price of $20 a share.

There are 40,000 shares of preferred stock outstanding at a market price of $34 a share. The bond issue has a total face value of $500,000 and sells at 102 percent of face value. The company’s tax rate is 34 percent. What is the weighted average cost of capital for Peter’s Audio Shop?
A) 6.14 percent
B) 6.54 percent
C) 8.60 percent
D) 9.14 percent
E) 9.45 percent

ANSWER

D