(Weighted average cost of capital) As a consultant to GBH Skiwear, 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:

Source of Capital Market Values

Bonds $470,000

Preferred Stock $110,000

Common Stock $410,000

To finance the purchase, GBH will sell 20-year bonds with a $1,000 par value paying 8.4 percent per year (paid semiannually) at the market price of $929. Preferred stock paying a $2.51 dividend can be sold for $34.03. Common stock for GBH is currently selling for $49.09 per share. The firm paid a $4.06 dividend last year and expects dividends to continue growing at a rate of 3.5 percent per year into the indefinite figure. The firm's marginal tax rate is 34 percent.

a. Calculate component weights of capital:

i. What is the weight of debt in the firms capital structure?

ii. What is the weight of preferred stock in the firms capital structure?

iii. What is the weight of common stock in the firms capital structure?

b. Calculate component costs of capital:

i. What is the after-tax cost of debt for the firm?

ii. What is the cost of preferred stock for the firm?

iii. What is the cost of common equity for the firm?

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

d. What is the discount rate you should use to evaluate the warehouse project? (Round to three decimal places.)