Reference no: EM132507611

60 percent of BlueVal's capital equity has an estimated cost of 22.5 percent. 40 percent of BlueVal's capital comes from debt, with half at an interest rate of 10 percent (mortgage rate) and half at 8 percent for the proposed new line of credit. The cost of debt is lower than expected because of the 34 percent expected tax savings.

The following table illustrates BlueVal's capital structure-pre and post financing:

                       Capital Transaction as of December 31, 2010          Proposed New Financing          Total After New Financing

Shareholders' Equity     1,726,883                                                   800,000                                 2,526,883

Mortgage Outstanding     900,000                                                                                              900,000

Credit Line                                                                                 800,000                                   800,000

Total Capital                        2,626,883                                    1,600,000                                      4,226,883

Question 1: Weight the individual capital source costs by their percentage in the company's total capital structure. Explain your weightages.