Delta Chemical Corporation is expected to have the capital structure for the foreseeable future as given in the following table. The floatation costs are already included in each cost component. The marginal income tax rate (t_m) for Delta is expected to remain at 40% in the future.

Determine the cost of capital (k). Hint: Find i_e and i_d and then k.

If the risk-free rate is known to be 6% and the average return on the S&P 500 is about 12%, determine the cost of equity with beta=1.2 based on the capital asset pricing principle.

Determine the cost of capital on the basis of the cost of equity obtained in part B above. Hint: Recalculate k by using the i_e that you calculated in Part B.