What is the firm's weighted average cost of capital?

Question

McCoy's, Inc., has equity with a market value of $40 million and debt with a market value of $20 million. The cost of the debt is 6 percent semi-annually. Treasury bills that mature in one year yeid 5 percent per annum, and the expected return on the market portfolio over the next year is 15 percent. The beta of McCoy's equity is 0.8 taxes. the firm pays no taxes.

Answer 1

You already know the cost of debt. Now just plug the data you have into the CAPM to get the cost of equity and do a weighted average.

Here'a hint:

cost of equity = risk free + Beta (Market Return - risk free)