# Cost of debt and equity

Question - If my company has common stock with a BETA of 1.3, a rate of 4.5% and an expected return on the market of 12%, what is my cost of equity capital?

Secondly, if my company has an outstanding debt issue with 12 years to maturity quoted at 105% of the face value and has a coupon rate of 8% annually, what is my pretax cost of debt? What is my aftertax cost if my rate goes to 35%?

Thank you.

© BrainMass Inc. brainmass.com June 3, 2020, 10:07 pm ad1c9bdddfhttps://brainmass.com/business/interest-rates/cost-debt-equity-216349

#### Solution Preview

Question - If my company has common stock with a BETA of 1.3, a rate of 4.5% and an expected return on the market of 12% what is my cost of equity capital?

Use the CAPM equation to calculate the cost of equity capital

Cost of equity Capital = Rf + (Rm-rf)beta

where

Rf = risk free rate = ...

#### Solution Summary

The solution explains how to calculate the cost of debt and cost of equity.