Share
Explore BrainMass

Cost of Debt & Equity

#1. Suppose the 10-year Treasury rate is current 3.54 percent. You analyze your
firm's financial ratios and determine that it is most similar to BB-rated firms,
which currently have a spread over the 10-year Treasury of 400 basis points.
Calculate your firm's cost of debt.

#2. Firm B expects to pay a dividend next year of $4 per share and that its dividend will grow at a constant rate of 5 percent indefinitely into the future. Firm B's stock price is currently $25 per share. Use the dividend discount model to
calculate the cost of equity.

Solution Preview

#1. Suppose the 10-year Treasury rate is current 3.54 percent. You analyze your firm's financial ratios and determine that it is most similar to BB-rated firms,
which currently have a spread over the ...

Solution Summary

This solution is comprised of a detailed explanation to answer the request of the assignment of more than 150 words of text.

$2.19