Calculate the weighted average cost of capital for a company given the following information: Risk-free rate in the U.S.: 4% Expected return on the U.S. market portfolio: 14% Companys risk relative to the market risk (e): 0.90 The company has 2-year, 12% bonds (paid semi-annually), face value of $1,000, selling for $1095.73. The companys marginal tax rate: 35% The company finances 38% of its capital by debt and 62% by common equity.

Solution:

4%+(14%-4%)*.90=12%

Bonds YTM: = FV=1000, 60=PMT, 1095.73=PV, 4=N, Press I/YR = 3.39%

WACC =(0.38*3.39%*.65)+(0.62*12%) = 0.0083+0.12=12%

Is this answer correct? for WACC. If not, show me the correct answer please. Thank you!