Problem:
Manufacturing Inc. expects to generate perpetual yearly operating cash flow of $800,000 per year. The firm has a required return on assets of 10 percent. The market value of the firm's outstanding equity is $4.5 million dollars. The firm has $3.5 million of outstanding debt with a cost of 5.5 percent.
Requirement:
Question 1: Assuming that Webb Manufacturing Inc. has a corporate tax rate equal to zero, determine the firm's cost of equity capital.
Note: Explain all steps comprehensively.