D & DCommunications Corporation was seeking advice about establishing a program to repurchase some of its outstanding common stock. Throughout most of 2021, DD's stock had been a sluggish performer in an otherwise buoyant market, and management sensed a growing restlessness on the part of shareholders. At a recent meeting of the board of directors, discussions had centered on repurchasing some of the company's stock as a means to enhance shareholder value, and optimizing the capital structure. One long-time director had pushed hard to finance the repurchase by increasing DD's debt financing, and argued that this action would send a bold signal to the market about the future prospects of the firm. To be effective as a signa1, he suggested that the company would need to approximately double its current book value debt-to-equity ratio of 45%. This would cause their current single "A" bond rating and to get downgraded to "BBB". He estimated that such action would require the firm to issue approximately $2 billion in additional debt.

Financial Highlights 2020:(all figures in millions except for EPS/Share Price)

	2020
Operating Income (EBIT)	$1,402 M
Interest Expense	(181)
EBIT - I = Taxable Income	1,221
Minus Taxes (40%)	(488)
Net Income	733
Shares Outstanding	681
EPS	$1.08
Share Price	$27.75

Selected S&P Current Debt Obligation Yields:

AAA (Gov't of Cda 10 year): 5.7%

A: 6.10%

BBB: 6.40%

Data on D&D Publicly Traded Debt:

Credit Rating: A

Yield: 6.10%

Book value (in millions): $3,444.00

Data on D&D Publicly Traded Equity:

Current Price: $27.75

Current Beta: 1.0

Shares Outstanding (in millions): 681.0M

Book value (in millions): $7,602.0M

Market Risk premium: 7.0%

Other Data:

Target D/E: 28.81%

Corporate Tax Rate: 40.0%

1.a) Estimate D&D's current WACC (to two decimal places). (4 marks)