Question: The capital structure of Dartex Industries and the pretax cost of capital for each component are shown in the table below. Determine Dartex's weighted average cost of capital if the marginal tax rate is 34%.
Dartex Industries [figures in $000s]
|
Component
|
Value
|
Cost of Capital
|
|
Bonds
|
$2,000
|
7.50%
|
|
Preferred stock
|
$1,000
|
15.00%
|
|
Common stock
|
$5,000
|
20.00%
|
|
Total
|
$8,000
|
|