Problem: If Wild Widgets, Inc., (WWI) were an all-equity firm, it would have a beta of 0.9. WWI has a target debt-to-equity ratio of 0.50. The expected return on the market portfolio is 16%, and Treasury bills currently yield 8% per annum. WWI one-year, $1,000 par value bonds carry a 7% annual coupon and are currently selling for $972.73. The yield on WWI's longer term debt is equal to the yield on its one-year bonds. The corporate tax rate is 34%.
a. What is WWI's cost of debt?
b. What is WWI's cost of equity?
c. What is WWI's weighted average cost of capital?