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Calculate the cost of debt, equity

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The firm decides to raise $30 million by selling equity and debt. The investment bankers hired by your firm contact potential investors and come back with the following numbers:

  • Debt that pays $1 million coupons a year and $18 million maturity value after 10 years will sell for $20 million.
  • Equity that pays expected dividends of $1.2 million starting next year and growing at a rate of 3 percent per year thereafter sells for $10 million.

Question: Calculate the cost of debt, equity, and the WACC.

Reference no: EM131515978

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