Common Stock: 1 million shares outstanding, $40 per share, $1 par value,

Beta- 1.3

Bonds: 10,000 bonds outstanding, $1,000 face value each, 8% annual

coupon, 22 years to maturity, market price = $1,101.23 per bond

Market risk Premium = 8.6 %, risk-free rate = 4.5%, marginal tax rate = 34%

Cost of equity= 4.5% + (8.6%*1.3)=0.045+0.1118=0.1568=

15.68%

Equity= 1,000,000*40= 40,000,000

Debt= 10,000* 1101.23= 11,012,300

Total capital =40,000,000 + 11,012,300= $51,012,300

Equity= 40,000,000/$51,012,300 =0.7841

Debt= 11,012,300/51,012,300 = 0.2159

WACC= 0.784*15.68%= 0.1229 + 0.2159*4.672= 0.0101

WACC= 0.1229 + 0.0101

How did they get the underlined number of 4.672?