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

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

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.

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