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‘ LeeBurly’s capital structure consists of 40% debt and 60% common stock.
‘ LeeBurly has 25-year, 12% annual coupon bonds that have a face value of $1,000 and sell for $1,252.
‘ LeeBurly uses the CAPM to calculate the cost of common stock. Currently, the risk-free rate is 5% and the market risk premium is 6%. LeeBurly’s common stock
has a beta of 1.6. LeeBurly’s tax rate is 40%.(7 points)
a. What is the company’s after-tax cost of debt?
b. What is the company’s cost of common equity?
c. What is the company’s weighted average cost of capital (WACC)?
