Part D. Temecula Inc. reported the following income statement and balance sheet excerpts:

Income Statement Excerpts

Income before taxes	$200
Income tax expense	60
Net income	$140

Balance Sheet Excerpts

Long-Term Liabilities:
Note payable, 5%	100
Bond payable, 6%	400
Shareholders Equity:
Common stock	250
Additional paid-in-capital, C/S	350
Retained earnings	400

In addition, the risk-free interest rate on U.S. Treasury Bonds is 3% and the risk-premium attached to equity shares is 5%.

Required:

1. Compute the percentages of debt (liability) and equity (ownership) of financing $1,500 in assets.

500/1500 =.34 or 34% (liability) and 1000/1500 = .66 or 66%(ownership)

2. Determine the percentage (%) before-tax cost of debt capital.

3. Compute the percentage net (after-tax) cost of debt capital.

4. Determine the cost of equity capital.

5. Compute Temeculas weighted average cost of capital (WACC) by completing the following table:

Financing Type	% Financing	Cost of Capital	Weighted Component
Liabilities (debt)	34%
Equity (ownership)	66%
Total	100%	-----	WACC =