Cost of Capital Top Hat Questions 1. What is the cost of debt of a company with $100,000 of interest expense, $2 million of total debt, and 15% of a marginal tax rate? a. 4.25% 2. What is the cost of equity of a company with 1.5 beta, assuming a 2% risk-free rate and 6% of the market rate of return? a. 8% 3. Consider an enterprise with a capital structure consisting of 30% equity and 70% debt. If the costs of debt and equity of the company are 5% and 10% respectively, what would be the company's WACC? a. 6.5% 4. Real risk-free rate is currently 1.5%. A broker at INV Securities, has given you the following estimates of current interest rate premiums: Inflation: 2%, Liquidity Risk Premium 1%, Maturity Risk Premium 2%, and Default Risk Premium 1%. Based on these data, what are the rates of long-term Treasuries? a. 5.5% 5. Real risk-free rate is currently 1.5%. A broker at INV Securities, has given you the following estimates of current interest rate premiums: Inflation: 2%, Liquidity Risk Premium 1%, Maturity Risk Premium 2%, and Default Risk Premium 1%. Based on these data, what are the rates of short-term corporate bonds? a. 5.5.%