(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:

LOADING...

.

To finance the purchase, Lulu will sell

2020-year

bonds with a

$1 comma 0001,000

par value paying

6.46.4

percent per year (with interest paid semiannually) at the market price of

$1 comma 0181,018.

Preferred stock paying a

$2.482.48

dividend can be sold for

$35.2535.25.

Common stock for Lulu is currently selling for

$49.7149.71

per share. The firm paid a

$3.983.98

dividend last year and expects dividends to continue growing at a rate of

3.93.9

percent per year for the indefinite future. The firm's maginal tax rate is

3434

percent. What discount rate should you use to evaluate the warehouse project

s

nothing %.

(Round to two decimal places.)

Enter your answer in the answer box and then click Check Answer.

Data Table

Source of Capital	Market Values
Bonds	$280 comma 000280,000
Preferred stock	$210 comma 000210,000
Common stock	$540 comma 000540,000

a. Calculate component weights of capital.

The weight of debt in the firm's capital structure is

(Round to two decimal places.)

The weight of preferred stock in the firm's capital structure is

(Round to two decimal places.)

The weight of common stock in the firm's capital structure is

(Round to two decimal places.)

b. Calculate component costs of capital.

The after-tax cost of debt for the firm is

(Round to two decimal places.)

The cost of preferred stock for the firm is

(Round to two decimal places.)

The cost of common equity for the firm is

(Round to two decimal places.)

c. Calculate the firm's weighted average cost of capital.

The discount rate you should use to evaluate the warehouse project is