The Following Data Pertain to Loren Corporation (Dollar Amounts in Thousands)

question 43

Essay

The following data pertain to Loren Corporation (dollar amounts in thousands):
$\begin{array}{lc}\text { Total Assets } & \$ 10,254 \\\text { Interest-Bearing Debt } & \$ 1,257 \\\text { Average Pre-tax borrowing cost } & 9.20 \% \\\text { Common Equity: } & \\\text { Book Value } & \$ 5,624 \\\text { Market Value } & \$ 21,479 \\\text { Income Tax Rate } & 32 \% \\\text { Market Equity Beta } & 1.56 \\\text { Riskless interest rate } & 3.8 \% \\\text { Market risk premium } & 6.5 \%\end{array}$
Using this information, calculate the following:
a. Loren Corporation's cost of equity capital
b. The weight on debt capital that should be used to calculate Loren's weightech-average cost of capital.
c. Loren Corporation'sweighted-average cost of capital

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Definitions:

U.S. Treasury Securities

U.S. Treasury securities are debt instruments issued by the United States Department of the Treasury to fund government spending activities.

GDP

Gross Domestic Product, the total market value of all final goods and services produced within a country in a given period.

Public Infrastructure

The foundational facilities and systems serving a country, city, or area, including the services and facilities necessary for its economy to function, such as transportation, communication, sewage, water, and electric systems.

Public Debt

The total amount of money that a government has borrowed and not yet repaid, including both internal and external borrowings.