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Assuming you have 40 percent debt and 60 percent equity in your firm’s capital structure.

All the debt is in the form of zero coupon bonds. Assume that the price on the 10 year zero coupon bonds is $550 with a face value of $1,000.

The correlation between your company and the S&P is .87.

Assume that the standard deviation of the market is 18.75% and the standard deviation of your firm is 25.60%, the risk – free rate is 1.75%, and the return on the S&P is 11.34%.

Assume the corporate tax rate is 24%.

Determine the cost of capital for your firm.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M93048650

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