The Nutrex corporation wants to compute its weighted average cost of capital. Its target capital structure weights are 40 percent long- term debt and 60 percent common equity. The before-tax cost of debt is determined to be 10 percent and company is in the 40 percent tax bracket. The current risk-free interest rate is 8 percent upon Treasury bills. The expected return upon the market is 13 percent and firm's stock beta is 1.8.
Determine Nutrex's cost of debt?
Find out Nutrex expected return on common equity using the security market line.
Compute the after-tax weighted average cost of capital.