A firm's stock has a beta of 1.27, Treasury bills yield 3.5%, and the market portfolio offers an expected return of 9.0%. In addition to equity, the firm finances 19% of its assets with debt that has a yield to maturity of 6.2%. The firm is in the 28% marginal tax bracket.

Required:

(a) What is the companys after tax cost of debt?

(2 marks)

(b) Calculate the cost of equity.

(3 marks)

(c) In your own words, briefly explain the capital asset pricing model (CAPM) you used for answering part (b).

(4 marks)

(d) Calculate the firms risk premium.

(2 marks)

(e) Calculate the weighted average cost of capital.