Assume that Juniper Hats has $$300,000$ of debt outstanding, $10,000$ shares of common stock, and a stock price of $$50.$ Assume that the expected rate of return on stock is $15\%,$ while the expected rate of return on debt is $8\%.$ Assuming no taxes or costs of financial distress, calculate Juniper's weighted average cost of capital.

In this no$-$tax environment, The WACC for Juniper is given by

$r_{\text{W}\text{A}\text{C}\text{C}}=\frac{D}{D+E}{r}_D+\frac{E}{D+E}{r}_E$

Note that $r_{\text{W}\text{A}\text{C}\text{C}}=r_A,$ the rate of return on the assets. The problem gives $D=$ $$300,000.$ The market value of equity $E$ is the stock price multiplied by the number of shares outstanding, which equals $$500,000.$ Therefore,

$r_{\text{W}\text{A}\text{C}\text{C}}=\frac{300}{800}(\mathrm{.}08)+\frac{500}{800}(\mathrm{.}15)=\mathrm{.}124$