A firm's stock has a market capitalization of 385 million and an equity beta of 0.6. Bonds issued by the firm have a yield rate of 6.4%. Bonds with a similar debt rating have a default rate of 4.3% and a loss rate of 40%. The total market value of the firm's bonds is 315 million. The risk free rate is 3.4% and the market risk premium is 7.1%. Suppose that the CAPM assumptions hold. Calculate the firm's asset cost of capital.

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.