1- Suppose that a company has a capital structure of 70% debt and 30% equity. Annual before-tax cost of debt is 12% and tax rate is 30%. Risk-free rate is 5% and market risk premium = 6%. The company shares have a positive correlation with and are 1.25 times more volatile than the market. What is the weighted average cost of capital for the company?

1. 9.63%
2. 9.73%
3. 9.83%
4. 9.93%

2- Suppose that the market value of a company’s 5,000,000 outstanding number of shares is estimated at $500 mn. The market value of its interest-bearing debt is estimated at $400 mn, and the average before-tax yield on these liabilities is 10% per year. Tax rate is assumed to be 25%. Assume that the stock of the company is currently paying a dividend of $10 per year. The dividend growth rate is projected to be 10% per year. What is the weighted average cost of capital for the company?

1. 12.4%
2. 13.4%
3. 14.4%
4. 15.4%