A firm has $1,000 million in debt outstanding on the books, rated AA (carrying a yield to maturity of 8%). The beta of the stock is 1.05, and there were 100 million shares outstanding (trading at $35 per share). The treasury bond rate is 4%. The market risk premium is 5.5%. The corporate tax rate is 20%.

 What is the firm's cost of equity?

What is the firm's debt ratio (i.e. fraction of debt financing)?

What is the firm's after tax cost of debt?

What is the firm's weighted average cost of capital (WACC)

Answer rating: 100% (QA)

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