Marcosoft Inc. is a publicly traded company that operates in the software and entertainment business, deriving 60% of its value from software and 40% from entertainment. You have collected the following information on comparable firms:

	Comparable companies
	Leveraged beta	D/E ratio
Software industry	1.40	0.25
Entertainment	1.25	0.5

Macrosoft has 60 million shares outstanding, trading at $10/share and $180 million in 10-year corporate bonds (with a coupon rate of 4%) outstanding, trading at par. The company also has lease commitments of $40 million a year for the next 6 years and a marginal tax rate of 40%.

1. Estimate the current debt to equity ratio (in market value terms) for Macrosoft (make sure to capitalise the lease commitments)
2. Estimate the levered beta for the company
3. Estimate the current cost of equity for the company if risk free rate (Rf) is 2% and the market risk premium (Rm Rf) is 5.8%
4. Finally, compute the cost of capital for the company