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Cost of capital Wright Express (WE) has a capital structure of30% debt and 70% equity. WE is considering a project that requires an investment of$2.6

Cost of capital

Wright Express (WE) has a capital structure of30% debt and 70% equity. WE is considering a project that requires an investment of$2.6 million. To finance this project, WE plans to issue 10-year bonds with a coupon interest rate of 12%. Each of these bonds has a $1,000 face value and will be sold to net WE $980. If the current risk-free rate is 7% and the expected market return is 14.5%, what is the weighted cost of capital for WE? Assume WE has a beta of 1.20 and a marginal tax rate of 40%.

debt

equity

allocation

??

??

maturity

??

risk free rate

??

coupon rate

??

market return

??

par

??

beta

??

price

??

tax rate

??

nper

??

rf

??

pmt

??

rm

??

pv

??

rm - rf

??

fv

??

beta

??

type

??

bond yield

from capm

rate

??

rf + beta * (rm - rf)

??

tax rate

cost of debt

??

cost of equity

??

cost of capital

??

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