US Steel has $2.66 billion in total debt (which approximates its market value). Interest expense for the year was about $176.0 million. The companys market capitalization is approximately $1.74 billion, its market beta is 2.40, and its assumed tax rate is 21%. Assume that the risk-free rate equals 2.1% and the market premium equals 5%.

Rounding Instructions: Do not round until your final answers. Round answers to one decimal place.

(a) Estimate US Steel's cost of debt capital. Answer 5.23 x

(b) What does a beta of 2.40 mean regarding the volatility of US Steel's stock price.

a.US Steel's stock price decreases faster than the market index.

b.US Steel's stock price follows the market index very closely.

c.US Steel's stock price increases faster than the market index.

d.US Steel's stock price tends to be volatile compared to the market index.

(c) Estimate US Steel's cost of equity capital. Answer 14.1% (correct) (d) Using your rounded answers from (a) and (c) above, estimate US Steel's weighted average cost of capital. Answer 8.74 x

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