Information

What would the WACC be with this given information?
The A220 has an expected life of 5 years, will cost $90 million and its use will produce net operating cash inflows of $30 million per year. The G435 has a life of 10 years, will cost $128 million, and its use will produce net operating cash inflows of $25 million per year. Airvalue plans to serve the route for 10 years. When they need to purchase a new A220 at the end of five years, the cost will be $115 million net after allowing for salvage value of the used plane. Net operating cash inflows will remain at $30 million throughout the second five years. At the end of 10 years, salvage value of the G435 and of the second A220 are expected to be about the same at approximately $500,000 each.
The company uses the historical difference in returns between the S&P 500 and the Treasury bond rates of 7% as their estimated market risk premium. The current yield to maturity on a 10-year Treasury bond is 6.2%. Airvalue Airways’ common-stock equity beta is estimated as 1.40.
Airvalue’s capital structure is 58% common stock, 32% preferred stock and 10% long-term debt. An 8.8% after tax cost of debt has been determined and the cost of preferred stock is 12%.