Margo Corporation is a major producer of lawn care products. Its stock currently sells for $80 per share; there are 10.5 million shares outstanding. Margo also has a debt outstanding with a book value of $400 million. Margo bonds have a 10% coupon, paid semiannually and will mature in 20 years. The bond currently sells for $900 each. The risk-free rate is 8%, the market risk premium is 9% and Margo has a equal to 2. The corporate tax rate is 34%.

Margo is considering expansion of its facilities. Compute the weighted average cost of capital for Margo.

a. $ value of Equity/Debt

b.Weights of Equity/Debt

c. Use the SML to determine the cost of equity

d. Cost of debt

e. Compute WACC