Peter is a Senior Analyst at Capital Securities and have been reviewing the financial data of First National Bank with the possibility to invest in the stock of the company. The Junior Analyst who researched on the company compiled the information below. FNB has a Beta of 1.58, the risk-free rate is 8.14%, and the market risk premium is 13.78%. The yield on the company’s debt is 13.2%, the bond on 29 Nov is 11.46% while the marginal tax rate is 40%. The market value of Category X Ordinary shares is $16, 044, Category Y is $47, 406, and the Preference shares’ market value amounts to $618. The total debt of FNB is $12, 262.
a) Find the cost of equity (3 marks)
b) Find the after-tax cost of debt
