Tate Company is considering a proposal to acquire new equipment for its manufacturing division. The equipment will cost $192,000, be useful for four years, and have a $12,000 salvage value. Tate expects annual savings in cash operating expenses (before taxes) of $68,000. For tax purposes, the annual depreciation deduction will be $64,000, $86,000, $28,000, and $14,000, respectively, for the four years (the salvage value is ignored on the tax return). The income tax rate is 40%. Tate establishes a cutoff rate for a net present value analysis at the companys weighted average cost of capital plus 1 percentage point. Tates capital is provided in the following proportions: debt, 60%; common stock, 20%; and retained earnings, 20%. The cost rates for these capital sources are debt, 10%; common stock, 12%; and retained earnings, 13%.

a. Compute Tates (1) weighted average cost of capital and (2) cutoff rate. Round answers to one decimal place. For example, 0.4567 = 45.7%.

Weighted Average Cost of Capital and Net Present Value Analysis Tate Company is considering a proposal to acquire new equipment for its manufacturing division. The equipment will cost $192,000, be useful for four years, and have a $12,000 salvage value. Tate expects annual savings in cash operating expenses (before taxes) of $68,000. For tax purposes, the annual depreciation deduction will be $64,000, $86,000, $28,000, and $14,000, respectively, for the four years (the salvage value is ignored on the tax return. The income tax rate is 40%. Tate establishes a cutoff rate for a net present value analysis at the company's weighted average cost of capital plus 1 percentage point, Tate's capital is provided in the following proportions: debt, 60%; common stock, 20%; and retained earnings, 20%. The cost rates for these capital sources are debt, 10%; common stock, 12%; and retained earnings, 13%. Finish a. Compute Tate's (1) weighted average cost of capital and (2) cutoff rate. Round answers to one decimal place. For example, 0.4567-45.7% Weighted Average Cost of Capital Debt Common stock Retained earnings 0%! (1) Weighted avg. cost of capital (2) Tate's cut off rate