Epson has one bond outstanding with a yield to maturity of 4% and a coupon rate of 8%. The company has no preferred stock. Epson's beta is 1.5, the risk-free rate is 1.8% and the expected market risk premium is 6%.

Epson has a target debt/equity ratio of 0.8 and a marginal tax rate of 34%.

Attempt 1/1 for 10 pts.

Part 1

What is Epson's (pre-tax) cost of debt?

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Attempt 1/1 for 10 pts.

Part 2

What is Epson's cost of equity?

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Attempt 1/1 for 10 pts.

Part 3

What is Epson's capital structure weight for equity, i.e., the fraction of long-term capital provided by equity?

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Attempt 1/1 for 10 pts.

Part 4

What is Epson's weighted average cost of capital?