1. The basic cost of capital equation The calculation of a firm's weighted, or overall, cost of capital involves calculating the weighted average of the required rates of return on the company's debt and preferred and common equity, where the weights equal the percentage of each type of financing in the firm's overall capital structure. The general formula for the computation of a firm's weighted cost of capital is: ka=[((E+B+Pf)E)ke]+[((E+B+Pf)B)kd(1T)]+[((E+B+Pf)Pf)kp] where, ka=thefirmsweightedmarginalcostofcapitalE=thedollaramountofB=thedollaramountofkd=theT=thefirmstaxratePf=thedollaramountofinthefirmstargetcapitalstructurekp=costofthefirmsdebtcapital Stein Company has a target capital structure that consists of $3.7 million of debt capital, $3 million of preferred stock financing, and $3.2 million of common equity. The corresponding weights of its debt, preferred stock, and common equity financing that should be used to compute its weighted cost of capital (rounded to the nearest wo decimal places) are: 32.32%,37.37%, and 30.30%, respectively 37.37%,30.30%, and 32.32%, respectively 25.76%,31.26%, and 42.98%, respectively 31.26%,42.98%, and 25.76%, respectively Consider the following case: Armstrong Limited, a key competitor of Stein Company in the publishing field, has a capital structure consisting of 30% debt, 5% preferred stock, and 65% common equity. Concerned that its cost of capital may put it at a competitive disadvantage vis-a-vis the Stein Company, a Armstrong analyst has 65% common equity. Concerned that its cost of capital may put it at a competitive disadvantage vis-a-vis the Stein Company, a Armstrong analyst has been tasked with computing and comparing the weighted costs of capital of both companies. As the Armstrong analyst, and through your dogged research, you've collected the following capital structure and component cost data for both companies. (Remember, you don't have access to confidential financial information for Stein Company, so you've had to rely on balance sheet data collected from their published financial statements.) Complete the following table by computing each company's weighted cost of capital (rounded to four decimal places) and answer the related question that follows: If a firm's weighted cost of capital represents the overall or summary indicator of the market's perception of a firm's riskiness (across its different sources of financing), then which company currently appears to exhibit the greater risk? Armstrong Limited Stein Company