The controller of Olaf Corporation wants to establish a minimum rate of return and would like to use a weighted-average cost of capital. Current data about the corporation’s financing structure are as follows: debt financing, 40 percent; preferred stock, 30 percent; common stock, 20 percent; and retained earnings, 10 percent. The cost of debt is 91/2 percent. The dividend rate on the preferred stock issue is 71/2 percent. The cost of common stock and retained earnings is 12 percent. Compute the weighted-average cost of capital.
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