. Next Page Previous Page (The following information applies to the next five problems.) Cost of Capital Cost of Equity Beta Sail, Inc. is trying to determine its optimal capital structure. The chief financial officer has obtained estimates of the before tax cost of debt (ra) from the firm's Investment banker. She has estimated the common stock beta for each level of debt and has partially completed the worksheet below. The firm's marginal tax rate is 40%, the market return (TM)is 10%, and the risk-free rate of return (Frp) is 6% (WACC) 12.00% 11.30% (b) 1.50 (v.) 12.00% 12 92% 13 54% 11.04% Capital Structure 11.28% Cost of Debt (before tax) a) 7096 8.0% 9.0% 10.096 11.09 12.096 1.89 2.10 2.40 2.85 DIA 0 0.20 0.30 0.40 0.50 0.60 15.60% 17.40% Question 1 (1 point) If the firm's debt level (D/A) is 40%, what is the firm's cost of equity? A) 11.50% B) 12.92% OC) 13.76% Page 1 of 36 D) 14.1596 Page 7 E) 14.40% Page : Page 1 of 36 Previous Page Next Page (The following information applies to the next five problems.) Sail, Inc. is trying to determine its optimal capital structure. The chief financial officer has obtained estimates of the before tax cost of debt (ra) from the firm's investment banker. She has estimated the common stock beta for each level of debt and has partially completed the worksheet below. The firm's marginal tax rate la 40%, the market return (M) is 10%, and the risk-free rate of return (TRF) is 6% Cost of Equity Cost of Capital Beta Capital Structure (b) 150 (1) 12.00% 12.92% 13 549 (WACC) 12.00% 11.30% Cost of Debt (before tax) (ra) 7.0% 8.0% 90% 10.09 11.0% 120% DIA 0 0.20 0.30 0.40 0.50 0.60 11.049 1.89 2 10 240 285 15 60% 17 40% 11 294 Question 1 (1 point) If the firm's debt level (D/A) is 40%, what is the firm's cost of equity? A) 11.50% B) 12.92% C) 13.7696 D) 14.1596 Part of 3 E) 14.4096