Calculate cost of capitals

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You are considering a new project which costs $600,000. To finance the project, you plan to raise capitals by issuing equities and debt instruments. According to your financial advisor, you can raise up to $300,000 by issuing 5-year annual 12% coupon bonds. However, you need to issue 5-year annual 14% coupon bonds for additional capitals above $300,000. Below is the information you will use to estimate the cost of capitals. The project will pay a 40% tax rate. Calculate cost of capitals.

Equity Market U.S.

Equity Risk Premium 6%

Risk free rate 4%

Beta 0.9

Target capital structure (Debt/Equity) 1.5

Reference no: EM132487834

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