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Fynjy0 [20]
2 years ago
15

A company is 49% financed by risk-free debt. The interest rate is 8%, the expected market risk premium is 6%, and the beta of th

e company’s common stock is .59. a. What is the company cost of capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Cost of capital
Business
1 answer:
NemiM [27]2 years ago
3 0

Answer: 9.81%

Explanation:

Cost of capital = (cost of debt * weight of debt) + ( cost of equity * weight of equity)

Cost of Equity = Risk free rate + beta * Market risk premium

= 8% + 0.59 * 6%

= 11.54%

Cost of capital = (8% * 49%) + (11.54% * 51%)

= 9.81%

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