Calculate the weight on equity capital

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Reference no: EM13982910

The following financial statement data pertains to ABC Company (dollar amounts in millions):
Total Assets .........$145,782
Interest-Bearing Debt ......$32,659
Average Pre-tax borrowing cost... 8.25%
Common Equity:
Book Value ........$22,515
Market Value ........$65,843
Income Tax Rate ........40%
Market Equity Beta .......0.85
Market Premium ........7.5%
Risk-free interest rate .......2.2%

Required:

a. Calculate the company's cost of equity capital using CAPM.
b. Calculate the weight on debt capital that should be used to determine ABC's weighted-average cost of capital.
c. Calculate the weight on equity capital that should be used to determine ABC's weighted-average cost of capital.
d. Calculate ABC's weighted-average cost of capital. 

Reference no: EM13982910

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