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Work through the problem and submit for the answer. Target Capital Structure: 60% Equity and 40% Debt Tax Rate = 35% The firm has $1,000 par value bonds with coupon rate of 5% and yield to maturity of 6% and maturity of 7 years. The 1-year T-bill rate is: 2.5% Beta for the firm is 1.13, and Market Return is 10% IS THIS CORRECT? Looking for opinions Cost of Debt = I x (1-t) / NP = $600 x .35 / $1,000 = 21% Cost of Equity = Risk free rate of return + Beta x Market risk premium = 2.5% + 1.13% x 7.5% = 2.5%+.08 = 2.58%

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Financial Management, Finance

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