Armani is a firm manufacturing perfumes and other cosmetics and it sells its products worldwide. you are provided the following information The long-term treasury bond rate is 8%. The market return is 6.5% There are 10 million shares outstanding, trading at $ 44 per share currently; the stock has been traded for only two years. A regression of stock returns against market returns yields a beta of 0.7, with a standard error of 0.9. The debt on the balance sheet has two components. The first is traded bonds, with eight years to expiration and a coupon rate of 8%; there are 50,000 bonds outstanding, trading at $ 800 apiece (the face value is $ 1000). The second is $50 million in bank debt, which also has a ten year maturity, and carries an interest rate of 7%. With a market value of $36.5 million the marginal tax rate is 44% a. Estimate the cost of equity for Armani Inc. b. Estimate the market value of debt and the after-tax cost of debt for Armani Inc. c. Estimate the cost of capital for this firm using the market value weights

hint: you can use the approximate formula for estimating the cost of debt

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