Use the following information:

	Debt: $65,000,000 book value outstanding. The debt is trading at 86% of book value. The yield to maturity is 9%.
	Equity: 1,500,000 shares selling at $32 per share. Assume the expected rate of return on Federateds stock is 18%.
	Taxes: Federateds marginal tax rate is Tc = 0.35.

Suppose Federated Junkyards decides to move to a more conservative debt policy. A year later its debt ratio is down to 17.50% (D/V = 0.1750). The interest rate has dropped to 8.6%. The companys business risk, opportunity cost of capital, and tax rate have not changed.

Use the three-step procedure to calculate Federateds WACC under these new assumptions. (Do not round intermediate calculations. Round your answer to the nearest whole percent.)

Weighted-average cost of capital

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