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2. Weighted Average Cost of Capital An entrepreneur has an idea for a new company, and you are helping her to estimate the cost of
2. Weighted Average Cost of Capital An entrepreneur has an idea for a new company, and you are helping her to estimate the cost of capital for this new company. You have identified a publicly-traded company in a similar line of business, and have gathered the following data on this company: Long-term debt outstanding - $200 million Coupon rate of debt - 5.00% Market yield of debt - 8.00% Number of shares of common stock outstanding - 40 million Book value per share - $10.00 Market price per share - $20.00 Equity beta - 0.65 Assume perfect markets. The risk-free rate of interest is 2%, and the expected return on the market portfolio is 8%. What is the estimated cost of capital for the new company
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