Key Facts and Assumptions Concerning Costco Company,at December 31,2011,appear Below

Question

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The Answer is a.K_E = gov't borrowing rate + equity beta × market risk premium
K_E = 3.28 + 0.80 × 6.10 = 8.16%
b.Market value of equity = 449.5 × 75.08 = $33,748
Weight for debt = 2,524/(2,524 + 33,748)= 0.070

K _ { W } = ( 1 - t ) K _ { D } \frac { D } { D + E } + K _ { E } \frac { E } { D + E }

K _ { W } = ( 1 - 0.35 ) 0.0462 ( 0.07 ) + 0.0816 ( 0.93 )

K _ { W } = 0.078 = 7.8 \%

Key Facts and Assumptions Concerning Costco Company,at December 31,2011,appear Below

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Key Facts and Assumptions Concerning Costco Company,at December 31,2011,appear Below

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Correct Answer:
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