WACC

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The market situation:  The risk-free rate is 5% and the market risk premium is 8%.  The firm’s corporate tax rate is 35%.  The firm has a beta of 1.10.

Common Stock is listed on the balance sheet of this company at $25 million.  The Total Retained Earnings (meaning RE + Additions to Retained Earnings) is listed on the balance sheet as $50 million.

Long-term Debt consists of one outstanding bond issue with a face value of $75 million dollars, an 8 percent coupon rate and it sells for 93 percent of par.

A proposed project has expected cash inflows of year 1, $30,000; year 2, $40,000; year 3, $30,000 and year 4, $40,000.  There is no residual value at the end of year 4.

What is the weighted Average Cost of Capital (WACC)?

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