Weighted Average Cost of Capital and Net Present Value Analysis Manchester Company is considering a proposal to purchase special equipment at a cost of $740,000. The equipment will be useful for five years and has an expected $80,000 salvage value. Manchester expects annual savings in cash operating expenses (before taxes) of $250,000. For tax purposes, the annual depreciation deduction will be as follows (salvage value is ignored on the tax return): Year 1 $92,500 Year 2 185,000 Year 3 185,000 Year 4 185,000 Year 5 92,500 The income tax rate is 40%. Manchester establishes a hurdle rate for a net present value analysis at the company's weighted average cost of capital plus 2 percentage points, Manchester's capital is provided in the following proportions: debt, 70%; common stock, 20%; and retained earnings. 10%. The cost rates for these capital sources are debt. 8%; common stock, 12%; and retained earnings, 10% a. Compute Manchester's (1) weighted average cost of capital and (2) hurdle rate Round answers to one decimal place. For example, 0.4567-45.7% Debt Common stock Retained earnings (1) Weighted avg cost of capital (2) Manchester's cut off rate Weighted Average Cost of Capital