Use the following information: Debt: $79,000,000 book value outstanding. The debt is trading at 94% of book value. The yield to maturity is 7%. Equity: 2,900,000 shares selling at $46 per share....

Use the following information:
Debt: $79,000,000 book value outstanding. The debt is trading at 94% of book value. The
yield to maturity is 7%.
Equity: 2,900,000 shares selling at $46 per share. Assume the expected rate of return on
Federate d’s stock is 16%.
Taxes: Federate d’s marginal tax rate is Tc = 0.21.
Suppose Federated Junkyards decides to move to a more conservative debt policy. A year
later, its debt ratio is down to 14.00% (D/V = 0.1400). The interest rate has dropped to
6.6%. The company’s business risk, opportunity cost of capital, and tax rate have not
changed. Use the three-step procedure to calculate Federate d’s WACC under these new
assumptions.