Problem:
Jack's Construction Co. has 90,000 bonds outstanding that are selling at par value. The bonds yield 8 percent. The company also has 4 million shares of common stock outstanding. The stock has a beta of 1.1 and sells for $30 a share. The U.S. Treasury bill is yielding 3 percent and the market risk premium is 7 percent. Jack's tax rate is 34 percent.
Task:
What is Jack's weighted average cost of capital?
- 8.65 percent
- 8.38 percent
- 9.37 percent
- 5.39 percent
- 5.10 percent