Question
Ch14-21a &b.) Cost of CapitalHatter, Inc., has equity with a market value of $7.1 million and debt with a market value of $3.2 million. The
Ch14-21a &b.) Cost of CapitalHatter, Inc., has equity with a market value of $7.1 million and debt with a market value of $3.2 million. The cost of the debt is 7.5 percent per year. Treasury bills that mature in one-year yield 4 percent per year, and the expected return on the market portfolio over the next year is 11 percent. The beta of the companys equity is 1.10. The firm pays no taxes. a. What is the companys debtequity ratio? b. What is the companys weighted average cost of capital? c. What is the cost of capital for an otherwise identical all-equity firm?
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