cost of debt and equity

[Carlene123]

1. Debt: Jones Industries borrows $600,000 for 10 years with an annual payment of $100,000. What is the expected interest rate (cost of debt)?
2. Internal common stock: Jones Industries has a beta of 1.39. The risk-free rate as measured by the rate on short-term US Treasury bill is 3 percent, and the expected return on the overall market is 12 percent. Determine the expected rate of return on Jones’s stock (cost of equity). Here are the details:

Jones Total Assets	$2,000,000​
Long- & short-term debt	$600,000​
Common internal stock equity	$400,000​
New common stock equity	$1,000,000​
Total liabilities & equity	$2,000,000​

 

[Carlene123]

The problem is from Financial Management class for the Master's Program

 

[Deleted member 4993]

1. Debt: Jones Industries borrows $600,000 for 10 years with an annual payment of $100,000. What is the expected interest rate (cost of debt)?
2. Internal common stock: Jones Industries has a beta of 1.39. The risk-free rate as measured by the rate on short-term US Treasury bill is 3 percent, and the expected return on the overall market is 12 percent. Determine the expected rate of return on Jones’s stock (cost of equity). Here are the details:

Jones Total Assets	$2,000,000​
Long- & short-term debt	$600,000​
Common internal stock equity	$400,000​
New common stock equity	$1,000,000​
Total liabilities & equity	$2,000,000​

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