Jack's Construction Co.has 80,000 bonds outstanding that are selling at par value.Bonds with similar characteristics are yielding 8.5 percent.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 percent and the market risk premium is 8 percent.Jack's tax rate is 35 percent.What is Jack's weighted average cost of capital?

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Step 1 - Calculate the value of the firm's securities. V = E + D + P E = 40 × 4,000,000 = 160,000,000D = 1,000 × 80,000 = 80,000,000P = 0V = 240,000,000 Step 2 - Calculate the weight of each component of the firm's capital. W_d = 80,000,000 / 240,000,000 = 33.33% 11ea7fdb_fc74_0a60_a768_bd5c89078635_TB2902_11 = 160,000,000 / 240,000,000 = 66.67% Step 3 - Calculate the cost of each component of the firm's capital. k_d = 8.5% k_e = k_F + β(k_M - k_F) k_e= .04 + 1.1(.08) k_e = 12.8% Step 4 - Compute the WACC. WACC = W_dK_d 11ea7fdb_fc74_0a61_a768_4fc83882e5e2_TB2902_11 + W_pK_p + W_eK_e WACC = (.3333 × .085 (1 - .35)) + (.6667 × .128) WACC = 10.38%