How do I determine the cost of debt and the cost of equity use the following var

Question

How do I determine the cost of debt and the cost of equity use the following variables...then the WEIGHTED cost of debt and equity.
I assume the cost of debt = $75 x .90 = $65.50 ---> what is weighted cost of debt? Do I divided $65.50/total of D+E?

Calculate the weighted-average cost of capital (WACC) for Federated Junkyards of America, using the following information:
- Debt: $75,000,000 book value outstanding. The debt is trading at 90% of book value. The yield to maturity is 9%.
- Equity: 2,500,000 shares selling at $42 per share. Assume the expected rate of return on Federated’s stock is 18%.
- Taxes: Federated’s marginal tax rate is Tc = .35.

Explanation / Answer

yes wacc = (cost of equity x % of assets that are equity)+(cost of debt x (1-tax rate) x % of assets that are debt) Thus you have to find the following cost of equity = .18 cost of debt = .09 total assets = 75,000,000 + 2,500,000 = 77,500,000 % equity = 2,500,000 / 77,500,000 = .032258 % Debt = 75,000,000 / 77,500,000 = .967742 wacc = (.18 x .032258) +(.09(.65) x .967742) = .00580664 + .056612907 = .062419547 which is about 6.24% (after rounding)

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