Calculate before-tax cost of debt and cost of equity

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A firm uses only debt and common stock to finance their operations and maintains a debt-equity ratio of 0.8. Suppose the firm only issues one bond. The information is as follows: the face value of bond is 1,000. Coupon rate is 6%, paid semiannually. The current price of the bond is $950. There are 7 years before the bond matures. The current stock price is $50. The dividend paid for next year is expected to be $1. The dividend has constant growth rate of 2%. If the tax rate is 30%, please calculate before-tax cost of debt and cost of equity. What is the weighted average cost of capital?

Reference no: EM131088068

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