XYZ has 9 million shares of stock outstanding. The current shareprice is $50, and the
book value per share is $6. The firm also has two bond issuesoutstanding. The first
bond issue has a face value of $70 million and an 8% annualcoupon; it sells for 95% of
par. The second bond has a face value of $60 million and a 7%annual coupon; it sells for
97% of par. The first bond matures in 10 years, whereas thesecond matures in 5 years.
(a) What are XYZ’s capital structure weights on a book valuebasis?
(b) What are XYZ’s capital structure weights on a market valuebasis?
(c) Suppose the company’s stock has a beta of 1.5. The risk-freerate is 5% and the market
risk premium is 8%. What is the company’sWACC if the tax rate is30%?
