WABC Inc. (WABC) has a capital structure composed of Equity and Debt.

WABC has a corporate tax rate of 30%. WABC expects to be profitable this year for both accounting and income tax purposes.

A Government of Canada Treasury Bill is currently paying 2%. The yield on the Debt of WABC is estimated to be 5%.

Your research reveals that a share of WABC has an approximate beta of 1.25.

The Market Value of WABCs capital structure is $5,000 for the Equity and $10,000 for the Debt. The market risk premium for WABC is 7%.

WABC currently has $50,000 in cash sitting in a non-interest savings account at the Bank of Montreal. WABC was recently incorporated as a publicly traded company.

WABC has no preferred shares outstanding.

Required:

1. Calculate the yield on the Equity of WABC. (3 marks)

2. Calculate the WACC of WABC. (5 Marks)