Alan Mills Co has a capital structure consisting of 40% debt and 60% common equity. They have $15 million in available cash (reinvested profits) to use for capital projects. o Their common shares are selling for $30.00 each. Dividends for next year (D1) will be $1.50 per share, and a growth rate of 9% is expected. Underwriting costs for the issue of new shares will be $3.00 per share. Up to $20 million in bonds can be issued at 11%; any amounts greater than this will have to yield 13%. The corporate tax rate is 34%.
Calculate the initial weighted average cost of capital.