GBATT has a capital need of $100 million to fund its operations. GBATT has an equity investor that has made an investment in the common stock of GBATT for 60% of this amount but there is the anticipation is that they will earn a 15% return on this investment through capital returns and dividends. This level of anticipated return takes into account the anticipated risk in the investment. With this amount of capital support, GBATT was able to find a lender who will provide the balance of the capital needed at an interest rate of 10% with such debt to be paid out over 10 years. Such lender will require GBATT to fully collateralize its buildings in support of its bond payments. What is the cost of capital in this example?
GBATT has a capital need of $100 million to fund its operations. GBATT has an equity investor that has made an investment in the common stock of GBATT for 60% of this amount but there is the anticipation is that they will earn a 15%
What is the cost of capital in this example?
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