Question: A company has a before-tax cost of common equity of 14%, a pre-tax cost of debt 6%, a cost of preferred equity 8%, and a marginal tax rate of 34%. The current market value of the company is $150 million, with a $75 million common equity, $50 million debt, and $25 million preferred equity.
Required:
1. What will the company's weighted average pre-tax cost of capital?
2. What is the mathematical calculation used to get the 9.7%?
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