Calculate the cost of capital for operations (WACC). Use the capital asset pricing model to estimate the cost of equity capital. 

 

U.S Government long term bond rate           4.3% 

Market risk premium.                             5.0% 

Equity beta.                                         1.3 

Per share market price                          $40.70

Shares outstanding                               58 million 

Net financial obligations on balance sheet    $1,750 million 

Weighted average borrowing cost               7.5% 

Statutory tax rate                                  36.0% 

 

Required;

1) Explain why the cost of capital for operations is different from that for equity.