Reference no: EM132419264

Problem: SuperD Corporation is an electric power company in Hong Kong. In order to meet the rising demand for its electricity, the company is considering an investment in a new plant. The new project requires an initial outlay of $33 billion, and it will generate annual after-tax net cash flows of $246 million in perpetuity. As a manager of the Finance Department of the company, you were asked by your supervisor to compute the required return to be used when evaluating the new project. The corporate tax rate is 28%. You got the following pertinent information about the capital structure of the company.

• 39,000,000 shares of common stock with a book value of $4 per share and a beta of 1.3, currently trading at $128 per share.
• 4,300,000 units of 10-year zero-coupon bond with a par value of $1,000, currently trading at 78% of par
• 31,000,000 shares of 8% preferred stock with a par value of $100, currently trading at $91 per share
• The market risk premium is 8.6% and the risk-free rate is 3.2%

Question 1: Determine SuperD's capital structure weights on a market value basis

Question 2: Compute the weighted average cost of capital (WACC) of SuperD Corporation.