An analyst gathered the following information about ABC (a division of Diskey) and its publicly traded competitor, APL:

Comparable companies	Tax rate (%)	Debt/Equity	Equity beta
ABC	30	1.00	N.A.
APL	35	0.90	1.75

a. What is the marginal cost of capital for ABC, given the following information?

-ABCs 20 years to maturity, semiannual paying bonds outstanding with face value of $1,000, 10% coupon rate, selling for $849.54.

- Treasury bonds rate = 10%

- Treasury bills rate = 5%

-Return on the market = 15%

-Target capital structure= Debt (40%)/Equity (60%)

-Marginal tax rate is 40%.