Chapter 13, Problem 10QP

a.

Summary Introduction

To determine: The Pre-tax Cost of Debt.

Introduction:   The cost of debt is the effective interest rate of cost which a business earns on their current debts. Debt involves in the formation of capital structure. As the debt is considered as an deduction expenditure, the cost of debt is usually determined as after-tax cost in order to formulate similar to the cost of equity.

The cost of equity is the yield than an investor anticipates from the security as returns for the risk they accept by spend in the specific security. Additionally it is the return an investor needs before they prefer for an alternative investment which pays higher than the correct.

b.

Summary Introduction

To determine: The Cost of Equity.