Finding the WACC. Jamieson Clothing Company has 5.1 million ordinary shares outstanding: 290 000, 5.2% preference shares outstanding; and 125 000 5.7% half-yearly bonds outstanding, par value $1000 each. The ordinary shares currently sell for $72 and have a beta of 1.13; the preference shares sell for $103; and the bonds have 20 years to maturity and sell for 103% of par, and the yield to maturity of the bonds is 5.46%. The market risk premium is 6.8%; government bonds are yielding 4.3%; and Jamieson Clothing's tax rate is 30%. The book value of one preference share is $100. a. What is the firm's market-value capital structure? b. If Jamieson Clothing is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows under a classical tax system?
