Given the following information, find the Weighted Average Cost of Capital (WACC). Assume the corporate tax rate is 35%, and give an answer based on market values of debt and equity.
Debt: (1) 4,000 8.63 percent coupon bonds outstanding, $1,000 par value, selling for 105 percent of par. The yield to maturity is 3%. ; (2) 2,000 1.25 percent coupon bonds outstanding, $1,000 par value, selling for 100.5 percent of par. The yield to maturity is 1%
Common Stock: 100,000 shares outstanding, selling for $40 per share, the equity beta is 1.5.
Market: 5 percent risk premium and 5 percent risk-free rate.