Estimate the investors required rate of return on Traxos debt. (Use the approximation formula to determine the yield to maturity on outstanding bonds given the current price bonds are trading for in the market). (Demonstrate the formula and solution step by step)

ion 2.0 - Cost of Capital Stion 2.1 - CAPEX Decision Founded On Cost of Capital Estimate Traxo Manufacturing Ltd. shares are publicly traded on the Toronto Stock Exchange under the ticker symbol TRX.TO. The shares currently trade at a price of $2.25 per share. Security analysts that follow the stock have estimated it's beta coefficient to be 0.9. Traxo paid a dividend on its common stock last year that totaled $0.08 per share. Dividends have been growing at a 3.25% compound rate for the past three years and the expectation is that this growth can continue into the foreseeable future. Traxo Manufacturing Ltd. has an important warehouse capital project to consider. The warehouse project is expected to produce annual cash flows before tax of $290,000 for each of the next twelve years. The warehouse project is thought to be of similar risk to the risk of the firm itself. It will cost Traxo $750,000 this year to get this project up and running. Traxo has it's long term bonds trading on public markets. The bonds are currently trading at a premium from their par value of 101.34%. These 6.35% bonds have eleven years left until they mature Siri Li, Traxo's manager of finance has collected current data from the firm's underwriters. The risk- free rate is estimated to 1.01%. The expected return on the S&P/TSX Capped Total Return Composite index is forecast to be 7.5% in 2020. New equity capital could be raised by the firm at the current market price, but floatation costs would amount of 5% of the value of the issue. New bonds could be sold into the market, but the floatation cost percentage would be 4%. The firm faces a corporate tax rate of 35%. If the firm goes ahead with the capital project, it will have to seek external financing