If the average interest rate on debt is 11 percent, what is the cost of capital?
Refer to E12.1.
Russell Corporation’s capital structure consists of $ 5,000,000 of assets and $ 2,000,000 of liabilities. Joe Russell, the corporation’s CEO and largest shareholder, says that the debt has an average interest rate of 9 percent and that shareholders want a 16 percent return. What is Russell Corporation’s cost of capital?