The market value of AAA's common stock is 40 million and the market value of the risk-free debt is 60 million

Finance Mar 30, 2021

The market value of AAA's common stock is 40 million and the market value of the risk-free debt is 60 million. The beta of the company's common stock is 1.01, and th expected market risk premium is 0.64%. If the Treasury bill rate is 6%, what is the firm's cost of capital? give the answer in decimal form precise to three digits after the comma.

Expert Solution

Hence, the cost of capital = 6.259%

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