Hero Manufacturing has 8.8 million shares of common stock outstanding. The current share price is $70 and the book value per share is $6. The company also has two bond issues outstanding, both with semiannual coupons.

The first bond issue has a face value of $90 million and a coupon rate of 78 percent and sells for 109.5 percent of par.

The second issue has a face value of $75 million and a coupon rate of 8.1 percent and sells for 112.4 percent of par. The first issue matures in 15 years, the second in 25 years.

a. What are the companys capital structure weights on a book value basis?

b. What are the companys capital structure weights on a market value basis?

Now, suppose Hero Manufacturings stock has a beta of 1.20. The risk-free rate is 3.5 percent and the market risk premium is 7.5 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 34 percent.

C. What is the companys WACC?