申論題

17. You are going to launch a new business which is estimated to generate pre-tax cash flow of $15,000 in the first year with a growth rate of 3% per annum. The corporate tax rate is 20%.

(iii) Now suppose you want to issue both debts and equities to finance the business. Specifically, you would like to maintain the debt-to-equity ratio equal to one. If the beta of debt is 0.5, compute the costs of capital of the business for this scenario. (3 points)