What is the company's cost of debt? a. 9.21% b. 10.31% c. 11.5% d. 7.73% What is the company's cost of equity using the Capital Asset Pricing Model? a. 9.21% b. 10.31% c. 11.5% d. 7.73%

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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What is the company's cost of debt?

a. 9.21%
b. 10.31%
c. 11.5%
d. 7.73%

What is the company's cost of equity using the Capital Asset Pricing Model?

a. 9.21%
b. 10.31%
c. 11.5%
d. 7.73%

Your project requiring an initial cost of $23,500,000 was considered a low-risk, high-reward
investment by the company. The finance plan currently involves $9,200,000 of retained
earnings, $11,000,000 in new bonds, and the remainder coming from a term loan from the
bank. The bond rate is expected to be 11%, and the loan rate is expected to be 8%. The
company's ẞ value is 0.75, the risk-free interest rate is 4%, and the market return rate is
14%. The marginal tax rate is 25%.
ie= rf + B (rm -rf)
is = ks (1 - tm)
in = kb (1 - tm)
ia = (2) ip + (²) is
k = id (=) + ie (=)
Transcribed Image Text:Your project requiring an initial cost of $23,500,000 was considered a low-risk, high-reward investment by the company. The finance plan currently involves $9,200,000 of retained earnings, $11,000,000 in new bonds, and the remainder coming from a term loan from the bank. The bond rate is expected to be 11%, and the loan rate is expected to be 8%. The company's ẞ value is 0.75, the risk-free interest rate is 4%, and the market return rate is 14%. The marginal tax rate is 25%. ie= rf + B (rm -rf) is = ks (1 - tm) in = kb (1 - tm) ia = (2) ip + (²) is k = id (=) + ie (=)
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