Delta Chemical Corporation is expocted 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.

A$.$ Determine the cost of capital $($k$).$ Hint: Find $ic$ and $L_y$ and then $k.(20$

points$)$

B$.$ If the risk$-$free rate is known to be $6\%$ and the average return on the

SE$.$P $500$ is about $12\%,$ determine the cost of equity with $($Beta$)$

$-1\mathrm{.}2$ based on the capital asset pricing principle. $(20$ points$)$

C Determine the cost of capital on the basis of the cost of equity

obtained in part $B$ above. Hint Recalculate $k$ by using the it that you

calculated in Part B$.(10$ points$)$