1.

Assume the company's tax rate is 33 percent. Find the WACC.

Multiple Choice

10.33%

11.09%

10.07%

10.57%

10.17%

2. Starset, Incorporated, has a target debt-equity ratio of 0.71. Its WACC is 11 percent, and the tax rate is 33 percent.

If the company's cost of equity is 14 percent, what is the pretax cost of debt?

Cost of debt:

• 10.11%
• 14.59%
• 13.24%
• 10.91%
• 9.71%

If instead you know that the aftertax cost of debt is 5.5 percent, what is the cost of equity?

Cost of equity:

• 14.91%
• 24.47%
• 18.75%
• 15.51%
• 14.31%

Consider the following information for Watson Power Company: Debt: Common stock: 6,000 7.5 percent coupon bonds outstanding, $1,000 par value, 19 years to maturity, selling for 104 percent of par; the bonds make semiannual payments. 138,000 shares outstanding, selling for $56 per share; the beta is 1.18. 18,000 shares of 6.5 percent preferred stock outstanding, currently selling for $106 per share. 8.5 percent market risk premium and 5.5 percent risk-free rate. Preferred stock: Market