Most companies have several types and sources of capital. BlueVal has both equity and debt in its capital structure, each costing a different amount. When companies make capital investment decisions, it is useful to compute theweighted average cost of capitalconsidering all the capital sources that the company employs.

After financing the expansion, 60 percent of BlueVal's capital equity has an estimated cost of 22.5 percent. 40 percent of BlueVal's capital comes from debt, with half at an interest rate of 10 percent (mortgage rate) and half at 8 percent for the proposed new line of credit. The cost of debt is lower than expected because of the 34 percent expected tax savings.

The following table illustrates BlueVal's capital structurepre and post financing:

Capital Transaction as of December 31, 2010 (In US Dollars)Proposed New Financing (In US Dollars)Total After New Financing (In US Dollars)Shareholders' Equity1,726,883800,0002,526,883Mortgage Outstanding900,000900,000Credit Line800,000800,000Total Capital2,626,8831,600,0004,226,883

Considering the above information and the case study for this week, complete the following:

• Weight the individual capital source costs by their percentage in the company's total capital structure.
• Explain your weightages.

Support your statements with appropriate examples and scholarly references.