You are trying to structure a leveraged buyout (LBO) of an all-equity firm estimated to be worth $100 million Its equity beta is .8 and the CAPM market risk premium is 6.2%. The deal is expected to be financed with 80% debt and will require a 50% premium above market.

In other words, the firm will cost $150 million and you expect to borrow $120 million The firms tax rate is 413%. The first $30 million is a five-year zero coupon loan designed to yield 10% to maturity. The next $90 million is zero coupon subordinated debt.

If the standard deviation of return on the firm's assets is 34% per year, the five-year risk-free rate is 9%, and you expect zero dividend payout, what yield to maturity will be required on the subordinated debt if its face value is $267.065 million? What will the cost of equity be?