You are estimating the total cost of capital of two firms. ABC Co. has a CAPM beta of 0.6. Its capital structure of debt and equity is \($110,000\) and \($200,000\) at book value and \($100,000\) and \($185,000\) at market value. The firm is paying an interest rate of 8 percent on its debt, and the market borrowing rate for similar debt is now 7 percent. The firm's tax rate is 20 percent. The firm pays no dividends. DEF Co. has a CAPM beta of 1.3. Its capital structure of debt and equity is \($500,000\) and \($500,000\) at book value and \($490,000\) and \($900,000\) at market value. The firm is paying an interest rate of 7 percent on its debt, and the market borrowing rate for similar debt is now 6 percent. The firm's tax rate is 25 percent. The firm pays dividends of 25 percent of net income. Assume a risk-free rate is 3 percent and an equity risk premium is 5 percent. 

Required 

Determine the total cost of capital (weighted average cost of capital) of each firm (round to the tenth of a percent). Show your calculations. Which firm has the higher cost of capital. What are the implications having a higher and lower cost of capital for the two firms? Can you say anything about the value of either firm from this information? What are three reasons one firm's CAPM beta might be higher than another firm (identify and explain briefly)?