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Determine ideal cost of equity

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Reference no: EM132755817

Question - Ideal plans to borrow $500,000 to finance this project. The bank will charge the same loan rate as the existing bank loan that the company has of $2 million. The bank charges the company a loan rate which consists of the risk-free rate and a risk premium of 2%.

Ideal has 1,000,000 common shares with a market price of $2 each. The stock has a beta of 1. Currently, the market risk premium is 5% while the risk-free rate is 3%.

Ideal pays a 20% tax rate.

Required - Determine Ideal's cost of equity, cost of debt as well as the weighted average cost of capital?

Reference no: EM132755817

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