1)

Stock in Country Road Industries has a beta of 1.23. The market risk premium is 8.5 percent, and T-bills are currently yielding 3 percent. The company's most recent dividend was $1.8 per share, and dividends are expected to grow at a 5.5 percent annual rate indefinitely. If the stock sells for $35 per share, what is your best estimate of the company's cost of equity? (Do not round your intermediate calculations.)

rev: 09_20_2012

13.46%

12.19%

9.77%

10.55%

10.93%

2)Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 9 years to maturity that is quoted at 93 percent of face value. The issue makes semiannual payments and has an embedded cost of 10 percent annually.

Required:

(a)	What is the company's pretax cost of debt? (Do not round your intermediate calculations.)
	(Click to select)10.20%11.82%11.71%11.26%10.69%

(b)	If the tax rate is 35 percent, what is the aftertax cost of debt? (Do not round your intermediate calculations.)
	(Click to select)7.68%7.32%7.61%5.25%6.95%