The firms cost of debt is 6.53%.
The cost of debt is the effective interest rate paid by a firm on its debt, which includes bonds and loans. Debt, like equity, is part of a company's capital structure. The average interest paid on all of a company's debts is used to calculate the cost of debt.
Debt equity ratio =debt/equity
Hence, the debt =0.72 equity
Let the equity=$x
Hence, the debt=$0.72x
The total value=$1.72x
WACC=(respective costs*respective weights)
0.1128=[(x/1.72x)*0.147+(0.72x/1.72x)*cost of debt)]
0.1128=0.08546+0.4186*cost of debt
Cost of debt=(0.1128-0.08546)/0.4186
=6.53%.
Therefore, the cost of debt is 6.53%.
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