Jack's Construction Co. has 80,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 8.5%. The company also has 4 million shares of common stock outstanding. The stock has a beta of 1.1 and sells for $40 a share. The U.S. Treasury bill is yielding 4% and the market risk premium is 8%. Jack's tax rate is 35%. What is Jack's weighted average cost of capital?

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The WACC is calculated using the formula: WACC = (E/V) * Re + (D/V) * Rd * (1-Tc). Here, Re is the cost of equity calculated using CAPM: Re = Rf + Beta * Market Risk Premium = 4% + 1.1 * 8% = 12.8%. Rd is the cost of debt, which is 8.5%. E is the market value of equity: 4 million shares * $40 = $160 million. D is the market value of debt: 80,000 bonds * $1,000 = $80 million. V is the total value: $160 million + $80 million = $240 million. Tc is the tax rate: 35%. WACC = ($160M/$240M) * 12.8% + ($80M/$240M) * 8.5% * (1-0.35) = 10.38%.