A firm that pays an interest rate of 9 percent on its bonds has a marginal income tax rate of 50 percent. The interest rate on government bonds is 6 percent, the average rate of return on all stocks traded on the market is 10 percent, the estimated beta coefficient for the firm's stock is 1.5, and the firm intends to raise 60 percent of its capital by borrowing.
(i)What is the firm's cost of debt?
(ii)What is the firm's cost of equity capital?
(iii)What is the firm's composite cost of capital?

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The Answer of A firm that pays an interest rate of 9 percent on its bonds has a marginal income tax rate of 50 percent. The interest rate on government bonds is 6 percent, the average rate of return on all stocks traded on the market is 10 percent, the estimated beta coefficient for the firm's stock is 1.5, and the firm intends to raise 60 percent of its capital by borrowing.
(i)What is the firm's cost of debt?
(ii)What is the firm's cost of equity capital?
(iii)What is the firm's composite cost of capital?

A Firm That Pays an Interest Rate of 9 Percent