What are the formulas for 1 Capital component 2 after tax co

What are the formulas for

1. Capital component

2. after tax cost of debt

3. Cost of preferred

and 4. cost of equity

USING THE CAPM METHOD??

Solution

There are 3 components of capital which includes cost of debt, cost of preferred stock and cost of equity

After Tax cost of debt = I(1-t)

I = Interest rate of debt

t = tax rate

Cost of preference capital = Dp/Np

Dp = dividend of preference share

Np = proceeds of preference share

Cost of equity(CAPM method)

Ke = Rf +Ba(Rm-Rf)

Ke= cost of equity

Rf= Risk free rate of return

Ba = Beta of the security

Rm= expected market return