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( Calculating the weighted average cost of capital ) You are working as a consultant to the Lulu Athletic Clothing Company, and you have been
Calculating the weighted average cost of capital You are working as a consultant to the Lulu Athletic Clothing Company, and you have been asked to compute the appropriate discount rate to use in the evaluation of the purchase of a new warehouse facility. You have determined the market value of the firm's current capital structure which the firm considers to be its target mix of financing sources as follows: To finance the purchase, Lulu will sell year bonds with a $ par value paying percent per year with interest paid semiannually at the market price of $ Preferred stock paying a $ dividend can be sold for $ Common stock for Lulu is currently selling for $ per share. The firm paid a $ dividend last year and expects dividends to continue growing at a rate of percent per year for the indefinite future. The firm's maginal tax rate is percent. What discount rate should you use to evaluate the warehouse project?
a Calculate component weights of capital.
The weight of debt in the firm's capital structure is Round to two decimal places.
Data table
tableSource of Capital,Market ValuesBonds$
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