Discovery Manufacturing, Inc. has 2,550,000 shares of common stockoutstanding. The current share price is $115.67, and the book valueper share is $13.73. Discovery also has two bond issuesoutstanding. The first bond issue has a face value (or book value)of $5,640,900 and a coupon rate of 6.25% and sells for 104.1% ofPAR value. The second issue has a face value (or book value) of$6,464,100 and a coupon rate of 7.60% and sells for 92.2% of PARvalue. The 6.25% coupon bond matures in 21 years, the 7.60% couponbond matures in 9 years. Both bonds make semiannual payments. Thetax rate is 31.5%.

Suppose Discovery’s stock has a beta of 1.14. The 10-year TreasuryNote rate is 3.14%, and the market risk premium is 11.14%. Assumethat the overall cost of debt is the weighted average implied bythe two outstanding debt issues.

What is Discovery’s Weighted Average Cost of Capital(WACC)?

DATA INPUT
					6.25% Coupon Bond	7.60% Coupon Bond
Face Value (or book value)					$5,640,900	$6,464,100
Coupon rate					6.25%	7.60%
Bond price (% of PAR)					104.1%	92.2%
Term to maturity (years)					21	9
Tax rate					31.50%	31.50%
					Common Stock
# Shares outstanding					2,550,000
Market value per share					$115.67
Beta					1.14
10-year Treasury Note Rate(rRF)					3.14%
Market risk premium(rPM)					11.14%

Required figures in yellow

			After-Tax COST	Current Market Values ($)	Market Value WEIGHT (%)	Weighted Cost
6.25% Coupon Bond			0.000%	$0	0.000%	0.00000%
7.60% Coupon Bond			0.000%	$0	0.000%	0.0000%
Common Stock			0.000%	$0	0.000%	0.0000%
TOTALS				$0	0.000%
					WACC =	0.000%