Cost of Capital Daphney Corporation has raised $200,000 in equity financing through the issuance of shares.

Stockholders expect to earn an average of 20% per year on their equity investment in Daphney. In addition, the corporation has issued $100,000 of 10% bonds. The corporation has also accumulated $25,000 in earnings that have been retained in the company. Investors expect to earn about 16% on the earnings that are retained in the company. Using the weighting procedure discussed in the chapter, calculate Daphney Corporation’s cost of capital. (Ignore taxes in calculating the cost of debt.)