You have the following information about Burgundy Basins, a sink manufacturer.

Equity shares outstanding 20 million

Stock price per share $40.00

Yield to maturity on debt 7.5%

Book value of interest-bearing debt $320 million

Coupon interest rate on debt 4.8%

Market value of debt $290 million

Book value of equity $500 million

Cost of equity capital 14%

Tax rate 35%

Burgundy is contemplating what for the company is an average-risk

investment costing $40 million and promising an annual after-tax cash

flow of $6.4 million in perpetuity.

b. What is Burgundy's weighted-average cost of capital?

Isnt't the calculated tax rate suppose to be (1-0.35 = 0.65), you have 7.5%? How was the the Debt + Equity calculated? You say it is 800. How was that calculated?

b.WACC = cost of debt*Debt proportion + cost of equity *equity proportion = 7.5%*290/(290+800) + 14%*500/(290+800) = 1.99% + 10.27% = 12. 26% How was 800 calculated?