Problem 08-6: Required Rate of Return (CAPM)

A corporation's stock has a beta of 1.2. The risk-free rate is 7.25% and the expected return on the market is 10.5%. What is the required rate of return on the stock using the Capital Asset Pricing Model (CAPM)?

Problem 08-7: Cost of Debt

A company issues a 1,000 SAR par value bond that pays 8 percent annual interest and matures in 17 years. Investors are willing to pay 800 SAR for the bond.

Flotation costs will be 3 percent of market value. The company is a 33 percent marginal tax bracket. What will be the firm's after-tax cost of debt on the bond? Problem 08-8: WACC Calculation

The capital structure for a corporation is provided below. The company plans to maintain its debt structure in the future.

If the firm has a 5 percent after-tax cost of debt, a 12.5 percent cost of preferred stock, and an 15 percent cost of common stock, what is the firm's weighted average cost of capital?

Captial Structure

Bonds 1055

Preferred stock 255

Common Stock 3500