JW Technologies, Inc. (JWT) is a 5-year-old public company founded to develop new battery technology for various electronic devices. The company plans to license the technology and does not plan to invest in manufacturing facilities. The company has previously issued common shares and one bond issue to fund its activities.

The bonds have a remaining term of 20-years, a 10% semiannual coupon with a face (par) value of $1,000. The bond may be called in 5 years at a call price of $1,050 and currently sells for $1,100.

The stock currently sells for $50/share. The company currently pays a dividend of $1.00/share annually. The earning per share (EPS) is $2.00. Dividends and EPS are expected to grow 8% per year. The company currently uses a discount rate of 10%. The P/E ratio is expected to be the same as today in five years.

The company is considering a project to build a prototype machine using existing funds. The machine costs $90,000 and has delivery and installation costs of $10,000. The company will fully use a building which it currently subleases for $20,000. The company’s lease obligation ends at the end of the project period.

Having the machine will increase royalties received by $120,000 per year for five years. Incremental expenses for the sales are $25,000 plus depreciation. The machine will be depreciated over five years and has a useful life of five years. The tax rate for JWT is 34%. The current discount rate is 10%. 

What is the JWT bond’s yield to maturity?