1. Problem 10.01 (After-Tax Cost of Debt)

The Holmes Company's currently outstanding bonds have an 8% coupon and a 14% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 25%, what is Holmes' after-tax cost of debt? Round your answer to two decimal places.

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2. Problem 10.02 (Cost of Preferred Stock)

Torch Industries can issue perpetual preferred stock at a price of $67.00 a share. The stock would pay a constant annual dividend of $6.50 a share. What is the company's cost of preferred stock, r_p? Round your answer to two decimal places.

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3. Problem 10.03 (Cost of Common Equity)

Pearson Motors has a target capital structure of 40% debt and 60% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 9%, and its tax rate is 25%. Pearson's CFO estimates that the company's WACC is 11.50%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.

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