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Zinn Corp. has 3.50 million shares of common stock outstanding. The firm is in steady-state growth, and analysts expect the firm’s earnings and dividends to continue to grow at their historical rate for the foreseeable future—per share dividends on common have grown from $2.00 six years ago to $2.90 today. Each share of Zinn’s common stock is selling for $38.50 today. The firm’s beta is estimated to be 1.85. The long-term Treasury rate is 3.75%, and the expected market risk premium is 6.5%. Analysts estimate that potential equity investors will require a premium of 5.5% over the firm’s bond yield.

The firm’s long-term debt consists of 6.25% coupon bonds, which were issued 8 years ago with an original maturity of 20 years. These bonds pay interest annually. Today, these bonds have a yield of 9.75%. The book value of these bonds is $350 million. Zinn Corp. also has 480,000 shares of perpetual preferred stock outstanding, and these pay a fixed dividend of $7 per year on a face value of $50. Each share of the firm’s preferred currently sells for $79. The firm’s marginal tax rate is 30%. Estimate the firm’s weighted average cost of capital (WACC).

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