Problem 14-16 Finding the WACC [LO3]

Lingenburger Cheese Corporation has 6.2 million shares of common stock outstanding, 215,000 shares of 3.5 percent preferred stock outstanding, and 100,000 bonds with a semiannual coupon rate of 5.2 percent outstanding, par value $1,000 each. The common stock currently sells for $74 per share and has a beta of 1.10, the preferred stock has a par value of $100 and currently sells for $82 per share, and the bonds have 16 years to maturity and sell for 106 percent of par. The market risk premium is 6.9 percent, T-bills are yielding 2.9 percent, and the companys tax rate is 22 percent.

b.	If the company is evaluating a new investment project that has the same risk as the firms typical project, what rate should the firm use to discount the projects cash flows? (Do not round intermediate calculations enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Debt = 0.1820, Preferred Stock = 0.0303, Equity = 0.7877