Common Stock information 
Bond Information 


The market value of John’s stock represents 50% of the external financing, and bonds represent the other 50%. John’s tax rate is 0%, so aftertax cost of debt = beforetax cost of debt (therefore, no adjustment needed for tax).
Calculate John’s weighted average cost of capital.
Cost of equity = Risk free rate of return + beta(Market risk
premium)
=3.9% + 0.98(7.6%)
=3.9% + 7.45%
= 11.35%
Cost of debt = YTM = Interest +(Face value current market
price/n) / (Face value + current market price/2)
Interest = $90
Par value = $1000
Current price = $1016
n = no of year till maturity = 8
Thus cost of debt = 90 +(10001016/8) / (1000+1016)/2
=90+(16/8) / 2016/2
= 90  2 / 1008
= 88 /1008
= 0.0873
i.e 8.73%
Statement showing WACC
Particulars  Weight  Cost of capital  WACC 
a  b  c =axb  
Equity  50%  11.35%  5.68% 
Debt  50%  8.73%  4.37% 
WACC  10.04% 
Thus WACC = 10.04%
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