Spring 2008 Name: 2. You are trying to compute the cost of capital for a retail firm with significant operating lease commitments and some conventional debt and have collected the following information: There are two classes of shares outstanding in the firm: 12 million of non-voting shares that trade at $ 10 a share and 2.5 million voting shares that do not trade but have an estimated value of $ 12 a share. The firm has a bank loan on its books with a face value of $ 50 million, with 5 years left to maturity. The stated interest rate on the loan is 5%, but the company currently is rated BBB and the market interest rate on BBB rated bonds is 6%. The firm has expected lease commitments of $15 million each year for the next 8 years. The cost of equity for the firm is 10%. The effective tax rate is 30% and the marginal tax rate is 40% Estimate the cost of capital for the firm. (3 points)