We will begin by finding the market value of each type of financing. We find MVD-5,000($1,000)(1.03) -= S5,150,000 MVE-160,000(S57)- $9,120,000 And the total market value of the firm is: V $5,150,000+9,120,000 $14,270000 Now, we can find the cost of equity using the CAPM. The cost of equity is V RE-06+1.10(.07) = .1370 or 13.70% The cost of debt is the YTM of the bonds, so: PO-$1,030-$40(PVIFAR %,40) + $1,000(PVIFR%,40) R-3.851 % YTM-3.851% x2 = 7.70 % And the aftertax cost of debt is: RD-(1-35X.0770)-0o501 or 5.01 % Now we have all of the components to calculate the WACC. The WACC is: WACC 0501(5.15/14.27)+.1370(9.12/14.27)-.1056 or 10.56 % Notice that we didn't include the (1 -tC) term in the WACC equation. We sim used the aftertax cost of debt in the equation, so the term is not needed here