The following balance sheet and information are given for Carboni Company(CC) Current Assets $2,000,000 Short-term Securities 0 Long-term Assets…

Total

$9,000,000

Additional information: The CC’s bond has a face value of $1,000 and pays 10 percent semiannual coupon. The bond matures in 12 years and sells at a price of $920 in the bond market. The beta of CC is 1.25, market risk premium is 7.95 percent and risk free rate is 2.50 percent. The CC’s tax rate is 40%.

What is Carboni’s WACC?

 b. The following information is given for Guatelli Company(GC):

–         Bond outstanding: 3,000 bonds, selling at $995 per bond.

–         Common stock outstanding: 260,000 shares, selling at $23.40 per share.

–         The before-tax cost of debt of the company is 12.31%, beta of Guatelli is 1.40, market risk premium is 7.95%, tax rate 40%, and risk free rate is 2.50%? What is Guatelli’s WACC?

Required: Calculate WACC for both companies. Please describe, in writing, how you calculate WACCs in 6 lines.