1. A company has bonds outstanding with a par value of $1,000 and a coupon rate of 8%, paid annually. They mature in 15 years. The current price is $1200. The tax rate is 25%. What is the after-tax cost of debt for this company?

2.Thompson, Inc. has bonds outstanding with a credit rating of A. They also have common stock outstanding. The stock is currently trading for $50 per share in the market. The stock recently paid a dividend of $6 per share and this dividend is expected to grow at a rate of 2% indefinitely. The stock has a beta of 1.5. Currently, 10-year Treasury bonds have a yield of 3% and the market risk premium is estimated to be about 6%. From a credit risk analysis table, you note that on average, A-rated bonds have a yield of 7% in the market. The target capital structure weights for the firm are 40% debt and 60% equity. The tax rate on the firm is 25%. To do: estimate Thompsons WACC.

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