Manufacturer of ball bearings-cost of equity capital
Financial Management
The following data pertains to Zolar Corp., a manufacturer of ball bearings
(dollar amounts in millions). Total Assets $6,840 Interest-Bearing Debt $3,562
Average Pre-tax borrowing cost 11.5% Common Equity: Book Value $2,560 Market
Value $12,850 Income Tax Rate 35% Market Equity Beta 1.24 Assuming that
riskless rate is 4.2% and the market premium is 6.2%, calculate Zolar’s cost
of equity capital (i.e. the required rate of return on equity):
