Sprint Nextel Corporation (S) has $24.3 billion in total debt (which approximates its market value.) Each year this debt costs the company about $1.5 billion in interest expense. The company's market capitalization approximates $17.2 billion, its market beta is estimated 2.12, and its marginal tax rate is 35%. Assume that the risk-free rate equals 5.3% and the market premium equals 5.7%.

Rounding Instructions: Do not round until your final answers. Round answers to one decimal place. (a) Estimate Sprint Nextel's cost of debt capital. Answer

% (b) What does a beta of 2.12 mean regarding the volatility of Sprint Nextel's stock price.

Sprint Nextel's stock price decreases faster than the market index.

Sprint Nextel's stock price follows the market index very closely.

Sprint Nextel's stock price increases faster than the market index.

Sprint Nextel's stock price tends to be volatile compared to the market index.

(c) Estimate Sprint Nextel's cost of equity capital. Answer

% (d) Using your rounded answers from (a) and (c) above, estimate Sprint Nextel's weighted average cost of capital. Answer

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