Estimating Cost of Capital Measures Sprint Nextel Corporation (S) has $24.3 billion in total debt (which approximates its market value.) Each year this debt costs the company about $1.5 billion in interest expense. The company's market capitalization approximates $17.2 billion, its market beta is estimated 2.12, and its marginal tax rate is 35%. Assume that the risk-free rate equals 5.3% and the market premium equals 5.7%. Rounding Instructions: Do not round until your final answers. Round answers to one decimal place. (a) Estimate Sprint Nextel's cost of debt capital.

4.0%

Explanation:

Given the following ;

Total debt = $24.3billion

Tax rate = 35%

Interest paid on debt = $1.5billion

While raising funds for a corporation, companies capital are based on either sales of stock ( equity). The other source of capital may be based on the sale of bonds or the taking loans or other sources that culminate into debt. Capital raised through bonds and loans are all classed as debt and the interest paid on them is called the cost of debt capital. However, capital raised and classed as debt are tax free.

Cost of debt capital = [ ( interest on debt ÷ total debt) × (1 - tax rate) ]

Cost of debt capital = [ ($1.5 ÷ $24.3) × (1 - 0.35) ]

Cost of debt capital= $(1.5 /24.3)×(0.65) = 0.040

0.040 × 100 =4. 0%

the investment was $14,174.196

explanation:

a lump sum means that the father of the example made one deposit and leave it be.

we need to know the value of a capital that generated at 4.05% per year during 28 years the sum of $48,613.24

now clearing the formula to solve for capital we got:

and we reach the answer investment = $14,174.20

answer; risk transference;