Estimate current cost of capital

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Intel has an EBIT of $3.4 billion and faces a marginal tax rate of 36.50%. It currently has $1.5 billion in debt outstanding, and a market value of equity of $51 billion. The beta for the stock is 1.35, and the pretax cost of debt is 6.80%. The Treasury bond rate is 6%. Assume that the firm is considering a massive increase in leverage to a 70% debt ratio, at which level the bond rating will be C (with a pretax interest rate of 16%).

a. Estimate the current cost of capital.

Reference no: EM131536523

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