Watson manufactures and sells appliances. Intro develops and manufactures computer technology. Trenton operates general merchandise retail stores. Selected data for these companies appear in the following table (dollar amounts in millions). For each firm, assume that the market value of the debt equals its book value.

a. Assume that the intermediate term yields on U.S. Treasury securities are roughly 3.5 percent. Assume that the market risk premium is 5.0 percent. Compute the cost of equity capital for each of the three companies.
b. Compute the weighted average cost of capital for each of the three companies.

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($ amounts in millions) Total Assets Interest-Bearing Debt Average Pretax Borrowing Cost Common Equity: Book Value Market Value Income Tax Rate Market Equity Beta Intro $13,532 Trenton Watson $109,524 $ 33,925 4.3% $44,106 $18,752 4.9% $ 2,597 6.1% $ 13,465 $110,984 35.0% 0.78 $ 3,006 $ 2,959 $13,712 $22,521 35.0% 1.2 35.0% 2.27