(Weighted average cost of capital) As a member of the financedepartment of Ranch

(Weighted average cost of capital) As a member of the financedepartment of Ranch manufacturing your supervisor has asked you tocompute the appropriate discount rate to use when evaluating thepurchase of new packaging equipment for the plant. Under theassumption that the firms present capital structure reflects theappropriate mix of capital sources for the firm you havedetermined the market value of the firms capital structure asfollows: Bonds $3800000 ; Preferred Stock $1500000 ; CommonStock $6400000.To finance the purchase Ranch will sell 10 yearbonds paying 6.6% per year at the market price of $1042 preferredstock paying a $2.06 dividend can be sold for $25.64. Common stockis currently a rate of 5.3% per year into the indefinite future. Ifthe firms tax rate is 30% what discount rate should you use toevaluate the equipment purchase?