Taking the role as the financial manager of the treasury department of Lululemon Athletica, you have been assigned to the team estimating Lululemon's WACC. You must estimate this WACC in preparation for a team meeting later this week. Based on market data, you have gathered the following required information:

I. The risk$-$free rate of interest, i$.$e$.$ the yield of the ten$-$year government bond, is $3\mathrm{.}055\%.$

II$.$ Lululemon's:

Market capitalization $($its market value of equity$),$ $$223,890$ million.

CAPM beta, $1\mathrm{.}25.$

Total book value of debt outstanding, $$57,635$ million.

III. The cost of debt $($using the quoted yields on Lululemon's outstanding bond issues$),$ which is $4\mathrm{.}425\%.$

With this information in hand, you are now prepared to undertake the analysis.

REQUIRED:

Compute Lululemon's equity and debt weights based on the market value of equity and the book value of debt.

Calculate the cost of equity capital using the CAPM, assuming a market risk premium of $5\%.$

Using a tax rate of $20\%,$ calculate Lululemon's after$-$tax cost of debt.

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