Question
Eli is expanding his restaurant. With the current low interest rate, he is looking at financing this project with a 60% debt and 40% equity.
Eli is expanding his restaurant. With the current low interest rate, he is looking at financing this project with a 60% debt and 40% equity. The tax rate is 30%. For the debt portion, he is planning to issue a bond with a 6.5% coupon for 8 years. And with the current market condition, he believes the bonds can easily be sold at a premium price of $1,105 per bond. His cost of equity can be estimated using the Capital Asset Pricing model. The T-bill rate is at 1.5% and the market rate is at 8%. Since Elis place is fairly new and is considered a bit risky, its beta is 1.5. What would be Elis "cost of debt"?
Using the same information in Question 2, what would be Elis cost of equity?
Again, using the same information in Question 2, what would be Elis weighted average cost of capital?
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