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1 Measuring the Weighted Average Cost of Capital and Related Valuation Issues S AND PROBLEMS 1.1 Measuring the Weighted Average Cost of Capital: Calculate the weighted average cost of capital using both Equations 11.1 and 11.2. Assume the company's securities are publicly traded, that its debt is currently trading at 100% of par value, and that its preferred stock is currently trading at 110% of its par value. The company stock price is currently $8 per share, and the company has 5,000 shares of stock outstanding, which is net of 1,000 treasury shares. The risk-free rate is 4%, and the market risk premium is 6%. The company issued the debt and preferred stock at par value. The company has an equity beta equal to 1.5. The company has an effective interest rate equal to 7.5%, which includes an 0.5% default premium, and the cost of capital for the preferred stock is equal to 7.5%. The income tax rate on all income is 40%. The company plans to have a constant capital structure strategy based on its current capital structure ratios. The company's income statement and balance sheets are given below. Income Statement Revenue Operating expenses. Depreciation expense.. Earnings before interest and taxes Interest expense.. Income before taxes. Year 1 Year 2 $12.000