1. A company has outstanding long-term bonds with a face value of $1,000, a 6% coupon, and a 10% yield to maturity. If the company's tax rate is 40%, what would be its after-tax cost of debt?

b. A company's perpetual preferred stock pays a $7 annual dividend per share, and it currently sells for $70 per share. If the company were to sell a new preferred issue, what is a good estimate of the cost of that capital? Ignore flotation costs.

c.Wyatt Inc. uses the dividend-yield-plus-growth-rate approach to calculate the cost of equity. Investors expect Wyatt's year-end dividend (D₁) to be $10.00 a share, its expected dividend growth rate is 5%, and the stock currently sells for $200 a share. What is Wyatt's cost of equity?

d.Suppose you must estimate the cost of equity for a firm, and you have the following data: r_RF = 3%; r_M r_RF = 6%; b = 0.7; D₁ = $1.00; P₀ = $20.00; g = 6%; and r_d = the firm's bond yield = 6.5%. What is this firm's cost of equity using the CAPM approach?

E Suppose you must estimate the cost of equity for a firm, and you have the following data: r_RF = 3%; r_M r_RF = 6%; b = 0.7; D₁ = $1.00; P₀ = $20.00; g = 6%; and r_d = the firm's bond yield = 6.5%. What is this firm's cost of equity using the DCF approach?

F Suppose you must estimate the cost of equity for a firm, and you have the following data: r_RF = 5.5%; r_M r_RF = 6%; b = 0.8; D₁ = $1.00; P₀ = $25.00; g = 6%; and r_d = the firm's bond yield = 6.5%. What is this firm's cost of equity using the bond-yield-plus-risk-premium approach? Use a 4.5% judgmental risk premium in your calculation.