The CFO of Peaceful Book Binding Company is trying to determine the companys WACC. He has determined that the companys before-tax cost of debt is 10.20%. The company currently has $100,000 of debt, and the CFO believes that the book value of the companys debt is a good approximation for the market value of the companys debt.

	The firms cost of preferred stock is 11.40%, and the book value of preferred stock is $10,500.
	Its cost of equity is 14.30%, and the company currently has $85,000 of common equity on its balance sheet.
	The CFO has estimated that the firms market value of preferred stock is $30,000, and the market value of its common equity is $140,000.

1. If PBBC is subject to a tax rate of 40%, Peaceful Book Binding Companys WACC is _____? (7.66%, 10.40%, 12.59%, 10.95%) . (Hint: Round your answer to two decimal places.)

The case of Chilly Moose Fruit Producer

Chilly Moose Fruit Producer is considering a new project that will require an initial investment of $4 million. It has a target capital structure of 35% debt, 2% preferred stock, and 63% common equity. Chilly Moose Fruit has noncallable bonds outstanding that mature in 15 years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1,555.38. The yield on the companys current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell new shares of preferred stock that pay an annual dividend of $8 at a price of $95.70 per share. Assume that Chilly Moose Fruit new preferred shares can be sold without incurring flotation costs.

Chilly Moose Fruit does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $33.35 per share, and it is expected to pay a dividend of $1.36 at the end of next year. Flotation costs will represent 8% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 9.2%, and they face a tax rate of 40%.

2. Chilly Moose Fruits WACC for this project will be: (Hint: Round your answer to two decimal places.)

A) 11.88%

B) 8.42%

C) 9.90%

D) 10.89%