Practice Question: Assume that a company has a target debt-to-equity capital structure of 2. The company currently pays 8% annualy on its bonds. There are 10 years until maturity, and the bonds current trade at 93% of par. Bond flotation costs are 3%. The company's beta is 1.5, the risk-free rate is 5%, and themarket risk premiumis 4%. The company's tax rate= 30%.

1. Calculate WACC.
2. Assume that the company changed its target capital structure to 47% long-term debt, 20% preferred stock, and 33% common stock. If preferreds are issued at $25, pay a dividend of 7%, and have flotation costs of 5%, recalculate the company's WACC.
3. Briefly explain why the WACC has changed.