Data Inc. recently hired you as a consultant to evaluate its cost of capital. Using the following information, determine Data Inc’s cost of capital. ? New debt can be raised at a rate equal to the yield to maturity (YTM) on the company’s outstanding bonds. Their outstanding bonds mature in 20 years, have an 8% annual coupon, a par value of $1,000 and a market price of $1,050.00.
The company’s tax rate is 40%.
The risk-free rate is 4.50%, the market risk premium is 5.50% and the stock’s beta is 1.20.
The target capital structure consists of 35% debt and no preferred stock.