Tony’s Hot Dog Shop has 10 million shares of common stock outstanding selling for $20 per share, 5 million of preferred stock outstanding selling for $12 per share, and a bond issue of $300 million selling for 97.5 percent of par. The cost of equity is 12 percent, the cost of preferred stock is 5 percent, and the before tax cost of debt is 9 percent. Tony has a weighted average tax rate of 40 percent. What is the weighted average cost of capital?
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