the nutrex corp. wants to calculate its weighed average cost of capital. Its tar

Question

the nutrex corp. wants to calculate its weighed average cost of capital. Its target capital structure weights are 40 percent long-term debt and 60 percent common equity. The before tax cost of debt is estimated to be 10 percent and the company is in the 40 percent tax bracket. The current risk- free interest rate is 8 percent on Treasury bills. The expected return on the market is 13 percent and the firms stock beta is 1.8.

b) estimate Nutrex expected return on common equity using the security market line.

Explanation / Answer

Nutrex cost of debt =10%*(1-40%) =6.00%

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