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Zonk Corp.
The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions):
| Total assets | $7460 |
| Interest-bearing debt | $3652 |
| Average pre-tax borrowing cost | 10.5% |
| Common equity: | |
| Book value | $2950 |
| Market value | $13685 |
| Income tax rate | 35% |
| Market equity beta | 1.13 |
1. Assuming that riskless rate is 4.6% and the market premium is 7.3%, calculate Zonks cost of equity capital.
2.Determine the weight on debt capital that should be used to calculate Zonks weighted-average cost of capital:
3.Determine the weight on equity capital that should be used to calculate Zonks weighted-average cost of capital:
4.Using the above information, calculate Zonks weighted-average cost of capital
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