Key facts and assumptions concerning Kroger Company, at December 12, 2007, appear below Using this information, answer the questions following 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 ter...

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Key facts and assumptions concerning Kroger Company, at December 12, 2007, appear below. Using this information, answer

Question:

Key facts and assumptions concerning Kroger Company, at December 12, 2007, appear below. Using this information, answer the questions following.

	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	681.2	million
	Book value of equity	$ 4,965	million
	Book value of interest-bearing debt	$ 6,674	million
	Tax rate	35.0%



a.	Estimate Kroger's cost of equity capital.

b.	Estimate Kroger's weighted-average cost of capital. Prepare a spreadsheet or table showing the relevant variables.

Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...