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Exactly five years ago, Lee Corp. issued bonds with an original maturity of 25 years. These...

Exactly five years ago, Lee Corp. issued bonds with an original maturity of 25 years. These bonds pay interest semi-annually, and have a fixed coupon rate of 6.5%. These bonds are currently trading for $1070 for each $1000 of face value. The company faces a marginal tax rate of 25%.

It is estimated that Lee Corp. has a stock volatility that is 25% greater than that of the “market portfolio”. The yield on 10-year Treasury bonds is 2.55%, and the expected market risk premium (MRP) is 5.25%.

Estimate Lee’s marginal cost of common equity.

*Please solve with an explanation using an Excel file. Thank you!

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