Solved: Determine the cost of capital, Financial Accounting

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Determine the cost of capital

Cost of Capital

Solve the following problem:

Blues, Inc., is an MNC located in the United States. Blues would like to estimate its cost of capital (WACC). On average, bonds issued by Blues yield 9 percent. Currently, Treasury security rates are 3 percent. Furthermore, Blues' stock has a beta of 1.5, and the return on the Wilshire 5000 stock index is expected to be 10 percent. Blues' target capital structure is 30 percent debt and 70 percent equity. If Blues is in the 35 percent tax bracket, what is its cost of capital?

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Financial Accounting: Determine the cost of capital

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