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QUESTION
A firm plans to raise $4 million by borrowing at an interest rate of 16% and to raise $1 million by issuing common stock. the firm's stock has a beta coefficient of 2, the risk free interest rate is 6
A firm plans to raise $4 million by borrowing at an interest rate of 16% and to raise $1 million by issuing common stock. the firm's stock has a beta coefficient of 2, the risk free interest rate is 6%, the average rate of return on stocks is 9%, and the marginal tax rate is 25%. what is the firm's composite cost of capital?
