Question: Chapter 8 Problem 20 Key facts and assumptions concerning Montego Company, a producer of recreational equipment, appear below. Using this information, answer the following questions.

Chapter 8 Problem 20 Key facts and assumptions concerning Montego Company, a producer of recreational equipment, appear below. Using this information, answer the following questions. a. Estimate Montego's cost of equity capital. b. Estimate Montego's weighted-average cost of capital. Prepare a table showing the relevant variables. Facts and Assumptions Yield to maturity on long-term government bonds 4.54% Yield to maturity on company long-term bonds 6.32% Coupon rate on company long-term bonds 7.50% Market price of risk, or risk premium 6.30% Estimated company equity beta 1.05 Stock price per share $25.97 Number of shares outstanding (million) 681.2 Book value of equity (million) $4,965 Book value of interest-bearing debt (million) $6,674 Tax rate 35.0%

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