(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: B. To finance the purchase, Ranch Manufacturing will sell 10-year bonds paying interest at a rate of 6.7 percent per year (with semiannual payment) at the market price of $1,038. Preferred stock paying a $1.96 dividend can be sold for $25.01. Common stock for Ranch Manufacturing is currently selling for $55.93 per share and the firm paid a $3.05 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? a. Calculate component weights of capital. The weight of debt in the firm's capital structure is 32.54 %. (Round to two decimal places.) Data Table The weight of preferred stock in the firm's capital structure is 16.67 %. (Round to two decimal places.) The weight of common stock in the firm's capital structure is 50.79 %. (Round to two decimal places.) Source of Capital Bonds b. Calculate component costs of capital. Market Values $4,100,000 $2,100,000 $6,400,000 Preferred stock The after-tax cost of debt for the firm is 4.33 %. (Round to two decimal places.) Common stock The cost of preferred stock for the firm is 7.84 %. (Round to two decimal places.) Print Done The cost of common equity for the firm is 8.45%. (Round to two decimal places.)