Question - The following financial statement data pertains to Nivan, Inc., a manufacturer of Dress Shop's (dollar amounts in millions):
Total Assets - $145,782
Interest-Bearing Debt - $30,659
Average We-tax borrowing cost - 9.25%
Common Equity:
Book Value - $22.515
Market Value - $60.843
Income Tax Rate - 42%
Market Equity Beta - 0.88
Market Premium - 8.5%
Risk-free interest rate - 2.4%
Required:
a. Calculate the company's cost of equity capital.
b. Calculate the weight on debt capital that should be used to determine Nivan Shop's weighted average cost of capital.
c. Calculate the weight on equity capital that should be used to determine Nivan Shop's weighted average cost of capital.
d. Calculate Nivan Shops weighted average cost of capital.