Jack’s Construction Co. (JCC) has 80,000 bonds outstanding that are currently selling at par (face) value. Bonds with similar characteristics are currently 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 currently yielding 4% and the market risk premium is 8%. The corporate tax rate is 35%.
Please show ALL work.
a. What is JCC's after-tax cost of debt?
b. What is JCC's cost of equity?
c. What is the proportion (weight) of debt in JCC's capital structure?
d. What is the proportion (weight) of equity in JCC's capital structure?
e. What is JCC's WACC?