90.2K
Verified Solution
Link Copied!
You have been asked to review the cost of capital computation for Lemur Inc., a small
retail company.
- The company currently has 80 million shares trading at $10 a share, no
conventional debt and has estimated its cost of capital to be 10% (based upon a 100%
equity ratio).
- However, the firm has lease commitments of $ 25 million a year for the
next 5 years and $ 15 million a year for the following 3 years.
If the pre-tax cost of debt for the firm is 4% and the marginal tax rate is 40%, estimate the correct cost of capital.
(You can assume that the companys cost of equity will remain unchanged)
Answer & Explanation
Solved by verified expert
