You are interested in determining the cost of capital for Hewlett-Packard Company. The company is financed with $96 billion of common stock (market value) and $5 billion of debt. Assume the interest rate on the debt is 9% before-tax. The company's beta is 1.92, the interest rate on government bonds is currently 6%, and the historical excess return on common stocks is 6.5%. The firm is in the 34% tax bracket.
