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Brealey Corp's market value of common stock is $15 million, and its risk-free debt is $8 million in market value. The beta of the company's

  1. Brealey Corp's market value of common stock is $15 million, and its risk-free debt is $8 million in market value. The beta of the company's common stock is 0.78, and the market risk premium is 9.2 percent. If the Treasury bill rate is 3.7 percent, what is the company's cost of capital? (Ignore taxes)

    1. 8.38%

    2. 7.26%

    3. 6.47%

    4. 7.71%

    5. 5.93%

  2. Question 9

    3 Points

    Olmstead Inc. has a target D/E ratio =0.60. The cost of equity is 13.6% and the pretax cost of debt is 6%. What is the cost of capital given a tax rate of 21%?

    1. 12.79%

    2. 11.76%

    3. 10.28%

    4. 11.47%

    5. 12.55%

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