Provide a detailed explanation on how to solve this problem in detailed way.

Baxter Ltd. is a privately-held company operating in the building materials industry and is trying to calculate a cost of capital to use in the capital budgeting process. Future projects will continue to be in the same industry, so it was felt an accurate WACC could be calculated using company data.

Since Baxter is privately held, no price information was available for the calculation of its beta. To estimate beta, it decided to use several pure plays for comparison, and was able to collect the following information:

Company	Beta	Debt-to-Equity (%)
Wilson	1.21	40.0
Jacob and Sons	1.34	50.0
Mathew Jenkins	1.53	65.0
Average	1.36	52.0

The value of Wilson as a pure play is questionable since it has two separate divisions. The auto parts division has a beta of 1.45 and is approximately equal in market value to the building materials division.

Baxter's bonds do trade publicly and currently sell at 99.00. The bonds all have coupon rates of 6.00%, compounded semi-annually and terms of 15 years.

Baxter has a target capital structure of 40.0% debt and 60.0% equity. The current 90-day treasury bill rate is 1.50% and the 20-year treasury bond rate is 4.00%. The market risk premium is 5.0%. Baxter is subject to a marginal tax rate of 25.0%. Companypolicyisnottoincludeissuance costsinthecostofcapital.

REQUIRED:

2. Calculate Baxter's cost of capital
4. .I need a detailed explanation on calculations in the simplest ways