The Manx Company was recently formed to manufacture a new product. It has the following capital structure in market value terms. Debentures $ 6,000,000 Preferred Stock $ 2,000,000 Common Stock (320,000 shares) $ 8,000,000 Total Capital $ 16,000,000 The company has a marginal tax rate of 15%. A study of publicly held companies in this line of business suggests that the requires return on equity is about 17%. (The CAPM approach was used to determine the required rate of return.) The Manx Company’s debt is currently yielding 13%, and its preferred stock is yielding 12%. Compute the firms weighted average cost of capital.
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