Suppose there is a national TEP program to reduce the amount of sulphur emitted by electricity-generating power plants (power plant A and power plant B).

1. Cost of capital (WACC) Your task is to find the cost of capital (WACC) for a company. The company has two sources of capital available. The marginal tax rate for the company is 35%. Common stock: 200 000 shares outstanding with the accounting book value of $30 but the company was recently able to issue new stock with the price of $40. The company paid recently out $3.5 as dividends and expects dividends to grow by 2% annually within foreseen future. Debt 1: 2 500 discount (e.g. zero coupon) bonds with $1 000 par value and 4 years to maturity. Bonds currently offer 6% yield to bondholders. Debt 2: The company has also recently obtained financing from the bank. The current loan balance is $3 000 000 and the annual interest charged by bank is 2.2%. a) Estimate the capital structure weights for each source and cost of each source when necessary. Find the cost of capital (WACC) for the company b)