( The answer are from a similar question, however, the questions are same)
Save Homework: Chapter 14 Homework Score: 0 of 3 pts 6 of 6 (6 complete) HW Score: 36.36%, 40.. X P14-27 (similar to) : Question Help (Weighted average cost of capital) As a member of the Finance Department of Ranch Manufacturing, your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the firm's present capital structure reflects the appropriate mix of capital sources for the firm, you have determined the market value of the firm's capital structure as follows: To finance the purchase, Ranch Manufacturing will sell 10-year bonds paying interest at a rate of 6.6 percent per year (with semiannual payment) at the market price of $1,066. Preferred stock paying a $1.92 dividend can be sold for $25.73. Common stock for Ranch Manufacturing is currently selling for $54.37 per share and the firm paid a $2.96 dividend last year. Dividends are expected to continue growing at a rate of 4.7 percent per year into the indefinite future. If the firm's tax rate is 30 percent, what discount rate should you use to evaluate the equipment purchase? eWork: Chapter 14 Homework 13 pts 6 of 6 (6 complete) HW Score: 36.369 -27 (similar to) is Question Hel average cost of capital) As a member of the Finance Department of Ranch Manufat visor has asked you to compute the appropriate discount rate to use when evaluating til f new packaging equipment for the plant. Under the assumption that the firm's present eflects the appropriate mix of capital sources for the firm, you have determined the mark Data Table Source of Capital Bonds Preferred stock Common stock Market Values $4,200,000 52.000.000 $5.700.000 Print Done ur answer in the answer box and then click Check Answer aining a. Calculate component weights of capital The weight of debt in the firm's capital structure is 32.28 %. (Round to two decimal places.) The weight of preferred stock in the firm's capital structure is 18.90 %. (Round to two decimal places.) The weight of common stock in the firm's capital structure is 48.82 %. (Round to two decimal places.) b. Calculate component costs of capital The after-tax cost of debt for the firm is 4.60 %. (Round to two decimal places.) The cost of preferred stock for the firm is 8.37 %. Round to two decimal places.) The cost of common equity for the firm is 10.73% (Round to two decimal places) HUILES c. Calculate the firm's weighted average cost of capital. The discount rate you should use to evaluate the equipment purchase is 8.305 %. (Round to three decimal place
