Calculate the weighted-average cost of capital (WACC) for Federated Junkyards of America, using the following information:

Question:

• Debt: $75,000,000 book value outstanding. The debt is trading at 90% of book value.

The yield to maturity is 9%.

• Equity: 2,500,000 shares selling at $42 per share. Assume the expected rate of return on Federated’s stock is 18%.

• Taxes: Federated’s marginal tax rate is T c .35.

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