The WACC for this project is 10%.

The weighted average cost of capital (WACC) can be estimated by using the formula: WACC = wd * rd * (1 - Tc) + wp * rp + we * re where: wd, wp, we are the proportions of debt, preferred equity, and common equity in the company's capital structure rd, rp, re are the costs of debt, preferred equity, and common equity Tc is the corporate tax rate First, let's calculate the cost of each source of capital. 1. Cost of debt (rd): Kuhn Co.’s bonds are trading at a premium, which means the yield to maturity (YTM) is less than the coupon rate. However, the problem states that the yield on the company's current bonds is a good approximation of the yield on any new bonds that it issues. So we'll use the coupon rate of 10% as our cost of debt. 2. Cost of preferred stock (rp): The cost of preferred stock can be estimated by dividing the dividend by the market price. So, rp = 8/92.25 = 0.0867, or 8.67%. 3. Cost of common equity (re): Since new common stock is issued and the flotation cost is 8%, the net price per share is 33.35 * (1 - 0.08) = $30.682. Given that the company is expected to grow at a constant rate of 8.7% and it is expected to pay a dividend of $2.78 at the end of next year, the Gordon Growth Model can be used to estimate the cost of common equity: re = D1/P0 + g, where D1 is the dividends expected next year, P0 is the current price of the stock, and g is the growth rate. Thus, re = 2.78/30.682 + 0.087 = 0.09 + 0.087 = 0.177, or 17.7%. Substituting these values into the WACC formula gives us: WACC = 0.58*0.10*(1-0.25) + 0.06*0.0867 + 0.36*0.177 = 0.0435 + 0.005202 + 0.06372 = 0.112422, or 11.2422%. So the WACC for Kuhn Co.'s new project is approximately 11.24%.

D = 58% Epsilon = 36% P = 6% Cost of Debt: Kd = 10% Cost of Preferred Stock: Kps = 8% Cost of Common Stock: Kcs = (0.3335*(1-0.08)) + (2.78/(0.3335*(1-0.08)))*(0.08) Kcs = 13.00% WACC = 0.58(0.10) + 0.06(0.08) + 0.36[0.13(1-0.25) + 0.25(0.087)] WACC = 8.56%