This project illustrates how to determine the Weighted Average Cost of Capital (WACC) for a company given the following financial information.

Debt: 100,000 outstanding bonds with 15 years to maturity, $1,000 par, 8% coupon rate, currently selling for $1,160. Interest is paid annually.

Equity: 1,000,000 outstanding shares of stock currently sells for $50 and paid an annual dividend of $3 this past year, the constant growth rate of dividends equals 4%.

Market Information: Expected Return on Market is 9.5%, Treasury security yield is 3%.

Company Information: Companys Beta is 1.2, tax rate is 25%.

1. Start by writing the equation for the WACC. (1 point)

2. Calculate the different components of WACC.

a. Determine the before-tax cost of debt. (1 point)

b. Determine the cost of equity using two approaches. i. CAPM Approach (1 point) ii. Dividend Growth Model (DGM) Approach (1 point)

3. Use the above information to calculate the WACC.

a. Using CAPM approach for equity. (0.5 points)

b. Using DGM Approach for equity. (0.5 points)