Please explain how to solve this step-by-step. I was told the answer is 10.24%, but have no idea how they got that answer. Thank you.

A company is looking to invest in a marketing campaign. The financing of the marketing campaign is expected to come from the issuing of common equity and new debt. Currently, the company has total assets of $506 million and total liabilities of $321 million. Further, the new debt issue will consist of 15-year $1,000 face-value bonds that will pay semi-annual interest payments based on an annual coupon rate of 7%. Prices of similar bonds are quoted at 95.4% of par. Further, the company has a beta of 1.3. The expected return on the market is expected to be 14.5% while the risk free rate is 2.3%. Further, flotation costs for the new debt issues are $24 per bond while flotation costs for the new equity issue are 5%. Given this information what is the Weighted Average Cost of Capital for this company if the marginal tax rate is 34%?

Choices:

9.41%

9.79%

10.24%

13.41%

Someone posted this, but it is not computing to 10.24%. Please help!! Thank you.

Step 5: Calculate the WACC

WACC = (Market value of equity / Total value) * Cost of equity + (Market value of debt / Total value) * Cost of debt

Total value = Market value of equity + Market value of debt Total value = $185 million + $930 Total value $185.93 million

WACC = ($185 million / $185.93 million) * 18.16% + ($930 / $185.93 million) * 2.27%

WACC 0.995 * 18.16% + 0.005 * 2.27%

WACC 17.98% + 0.01135%

WACC 10.24%