Question
5. Aluminum maker Alcoa has a beta of about 1.84, whereas Hormel Foods has a beta of 0.44. If the expected excess return of the
5. Aluminum maker Alcoa has a beta of about 1.84, whereas Hormel Foods has a beta of 0.44. If the expected excess return of the market portfolio is 4%, which of these firms has a higher equity cost of capital, and how much higher is it? Alcoa's equity cost of capital is_____%? (Round to two decimal places.)
6.Avicorp has a $12.3 million debt issue outstanding, with a 6.1% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently priced at 93% of par value. a. What is Avicorp's pre-tax cost of debt? Note: Compute the effective annual return. b. If Avicorp faces a 40% tax rate, what is its after-tax cost of debt? Note: Assume that the firm will always be able to utilize its full interest tax shield.
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