You need to estimate the weighted average cost of capital (WACC) for a company. You have the
following balance sheet data as well as the information provided below:
Assets
Current Assets					$57,000,000
Net Plant, Property and Equipment					151,500,000
Total Assets					$208,500,000
Liabilitites and Equity
Accounts Payable					$15,000,000
Accruals					13,500,000
Current Liabilities					$28,500,000
Long-term Debt (60,000 bonds, $1,000 face value)					$60,000,000
Total Liabilities					$88,500,000
Common Stock (15,000,000 shares outstanding)					$45,000,000
Retained Earnings					75,000,000
Total Sharesholders Equity					$120,000,000
Total Liabilities and Sharesholders Equity					$208,500,000
You also have the following information:
1	Current Stock Price		$8.25
2	The company's long-term debt consists of a single bond issue (60,000 bonds) with the following properties:
	Current bond price		$925.50
	Years to Maturity		10
	Coupon Rate		5.50%
	Payments		semi-annual
3	The company's Beta =		1.25
4	The company plans to change its capital structure within the next 6 months
	The Proposed D/E ratio =			50%
	*Note - you are given the D/E ratio, not the D/(D+E) ratio. See hint below
5	US Treasury Securities Yields
	6-Month Treasury Note			0.09%
	20-Year Treasury Bond			1.37%
6	The expected return
	on the S&P 500 =		7.50%
7	Tax Rate =	25%
Hint: D/D+E = D/E/(1+D/E) and E/D+E = 1 - D/D+E

a)	Using the Security Market Line (CAPM) method, what is the best estimate for the company's
	cost of equity at the proposed 50% D/E capital structure

b)	What is the best estimate for the after-tax cost of debt?

c)	What is the best estimate for the company's WACC at the proposed new capital structure?

Question 1 Using the Security Market Line (CAPM) method, what is the best estimate for the company's cost of equity at the proposed 50% D/E capital structure? (10 pts) Cost of Equity What is the best estimate for the after-tax cost of debt? ( 5 pts) What is the best estimate for the company's WACC at the proposed new capital structure? ( 5 pts) Question 1 Using the Security Market Line (CAPM) method, what is the best estimate for the company's cost of equity at the proposed 50% D/E capital structure? (10 pts) Cost of Equity What is the best estimate for the after-tax cost of debt? ( 5 pts) What is the best estimate for the company's WACC at the proposed new capital structure? ( 5 pts)