Question 46

Jacks Construction Co. has 80,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 8.5 %. Face value of a bond is $1000. The company also has 4 million shares of common stock outstanding. The stock has a beta of 1.1 and sells for $40 a share. The U.S. Treasury bill is yielding 4 % and the market risk premium is 8 %. Jacks tax rate is 35 %. What is Jacks weighted average cost of capital?