Monk, Inc. manufactures and sells household appliances. Stoddard develops and manufactures computer hardware. Fiona operates a chain of general merchandise discount retail stores. Selected data of these companies appear in the following table (dollar amounts in million):

($ amounts in millions) Monk Stoddard Fiona

Total Assets $13,532 $109,524 $44,106

Interest-bearing Debt $2,597 $33,925 $18,752

Average Pre-tax Borrowing Cost 6.1% 4.3% 4.9%

Common equity: Book value $3,006 $13,465 $13,712

Market value $2,959 $110,984 $22,521

Income tax rate 35% 35% 35%

Market equity beta 2.27 0.78 1.2

Assuming that riskless rate (U.S. Treasury Securitites) is 3.5% and the market risk premium is 5.0%, determine the following for each of the three companies:

a. Cost of equity capital.

b. The weighted average cost of capital (debt and equity).

c. What can you intrepret about the weighted average cost of capital for each company from your calculations?

d. What effect will a change in capital structure likely have on these firms' weighted average cost of capital?