1. Costly Corporation plans a new issue of bonds with a par value of $1000, a maturity of 28 years, and an annual coupon rate of 10.0%. Flotation costs associated with a new debt issue would equal 8.0% of the market value of the bonds. Currently, the appropriate discount rate for bonds of firms similar to Costly is 6.0%. The firm's marginal tax rate is 50%. What will the firm's true cost of debt be for this new bond issue?

	5.43%
	6.69%
	10.86%
	3.35%
	12.19%

2. Marginal Incorporated (MI) has determined that its before-tax cost of debt is 9.0%. Its cost of preferred stock is 13.0%. Its cost of internal equity is 17.0%, and its cost of external equity is 22.0%. Currently, the firm's capital structure has $310 million of debt, $60 million of preferred stock, and $130 million of common equity. The firm's marginal tax rate is 45%. The firm is currently making projections for the next period. Its managers have determined that the firm should have $97 million available from retained earnings for investment purposes next period. What is the firm's marginal cost of capital at a total investment level of $466 million?

	9.05%
	10.35%
	9.70%
	12.86%
	11.56%

3. Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $46.00 per share. The firm's dividend for next year is expected to be $4.30 with an annual growth rate of 7.0% thereafter indefinitely. If the firm issues new stock, the flotation costs would equal 14.0% of the stock's market value. The firm's marginal tax rate is 40%. What is the firm's cost of external equity?

	17.00%
	16.35%
	17.87%
	18.63%
	16.85%