Rumolt Motors has 68 million shares outstanding with a price of $28 per share. In addition, Rumolt has issued bonds with a total current market value of $2149 million. Suppose Rumolt’s equity cost of capital is 15%, and its debt cost of capital is 11%.

a. What is Rumolt’s pre-tax weighted average cost of capital?

b. If Rumolt’s corporate tax rate is 38%, what is its after-tax weighted average cost of capital?

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