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The common stock of CORPORATION X has a beta of 0.9. The Treasury bill rate is...

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Finance

The common stock of CORPORATION X has a beta of 0.9. TheTreasury bill rate is 4%, and the market risk premium is estimatedat 8%. CORPORATION X capital structure is 27% debt, paying aninterest rate of 6%, and 73% equity. The debt sells at par.CORPORATION X pays tax at 40%.

  1. What is BCCI’s cost of equity capital? (Do not roundintermediate calculations. Enter your answer as a percent roundedto 1 decimal place.
  2. What is its WACC? (Do not round intermediate calculations.Enter your answer as a percent rounded to 2 decimal places.)

Answer & Explanation Solved by verified expert
4.0 Ratings (838 Votes)
Solution a Calculation of Cost of Equity Capital Cost of equity as per Capital Asset Pricing Model is calculated using the following formula RE RF RM RF Where RE Cost of equity RF Risk free    See Answer
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The common stock of CORPORATION X has a beta of 0.9. TheTreasury bill rate is 4%, and the market risk premium is estimatedat 8%. CORPORATION X capital structure is 27% debt, paying aninterest rate of 6%, and 73% equity. The debt sells at par.CORPORATION X pays tax at 40%.What is BCCI’s cost of equity capital? (Do not roundintermediate calculations. Enter your answer as a percent roundedto 1 decimal place.What is its WACC? (Do not round intermediate calculations.Enter your answer as a percent rounded to 2 decimal places.)

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