The following are financial data for Winnipeg Electric Company:

Debt	1,500, 6.80% couponbonds outstanding; par value CAD 1,000; 10 years to maturity; current bond quotationof105.32
Common shares	65,000 shares outstanding; selling for CAD 38.00 per share; beta is 0.78
Preferred shares	5,000 preferred shares in circulation; annual dividend of CAD 4.00; sellingfor CAD 80.00 per share
Market data	4.0% risk-free rate; 5.0% market risk premium
Tax rate	30.0%

The company does not have a formal target capital structure and its policy is not to includeissuance costs in the cost of capital.

REQUIRED:

1. Calculate Winnipeg Electrics WACC.

1. Why should the company have a target capital structure?