Question
Brick and Mortar Co has a capital need of $100 million to fund its operations. Brick and Mortar Co. has an equity investor that has
Brick and Mortar Co has a capital need of $100 million to fund its operations. Brick and Mortar Co. has an equity investor that has invested in the company's common stock for 60% of this amount. Still, there is the anticipation that they will earn a 15% return on this investment through capital returns and dividends. This level of anticipated return considers the expected risk in investment. With this amount of capital support, Brick and Mortar Co. could find a lender who would provide the balance of the capital needed at an interest rate of 10%, with such debt to be paid out over ten years. Such lenders require Brick and Mortar Co. to collateralize its buildings to support its bond payments fully. What is the cost of capital in this example?
this is all the information I have
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