Question $1$

Assume a listing engineering firm has $$4$ million in outstanding bonds that mature in four years, with a

fixed rate of $7\mathrm{.}5\%($assume annual payments$).$ The bonds trade at a price of $$98$ in the open market.

The firm's marginal tax rate is $35\%.$ What is the firm's cost of equity risk assuming an add$-$on of $4\%?$

$(20$ marks$)$