Amazon has 59,000 shares of common
stock outstanding at a market price of $36 a share. The common
stock just paid a $1.64 annual dividend and has a dividend growth
rate of 2.8 percent. There are 12,000 shares of 6 percent preferred
stock outstanding at a market price of $51 a share. The preferred
stock has a par value of $100. The outstanding bonds mature in 17
years, have a total face value of $750,000, a face value per bond
of $1,000, and a market price of $1,020 each. The bonds pay 8
percent interest, semiannually. The tax rate is 34 percent. What is
the firm’s weighted average cost of capital?
