A plastic manufacturer is evaluating its capital structure. Please answer the questions based on the following information.

aThe book value of debt is 3,000 and the book value of equity is 3,000(in millions) bThe debt is in the form of long-term bonds selling at a yield of 12%(the market value of the bonds is 80% of the face value). cThe firm currently has 50 million shares outstanding, and the current market price is $80 per share. dThe stock currently has a beta of 1.2 eThe risk-free rate is 8%. The risk premium is 5.5% fThe tax rate for this firm is 40%.

Questions:

1What is the debt/equity ratio for this firm in book value terms? In market value terms? 2What is the debt/(debt+equity)ratio for this firm in book value terms? In market value terms? 3What is the firm's after-tax cost of debt? 4What is the firm's cost of equity? 5What is the firm's current cost of capital?