1- The company's after-tax cost of debt is: A- 7.2% B- 8.0% C- 9.1% D- 7.0% E- None

2- The company's cost of equity using the dividend discounted model is: A-15 4% B-16.0% C-16.6% D-16.9% E-None

3- The company 's weighted average cost of capital (using the cost of equity from CAPM) is closest to: A-12.5% B-13.0% C-13.5% D-15.0% E-None

Use the following data to answer Questions 1 through 3. A company has a target debt-equity ratio of 0.667. The company's bonds with face value of $1,000 pay a 10% coupon (semiannual), mature on 20 years, and sell for $849.54 with a yield to maturity of 12%. The company stock beta is 1.2. Risk-free rate is 10%, and market risk premium is 5%. The company is a constant-growth firm that just paid a dividend of $2, sells for $27 per share, and has a growth rate of 8%. The company's marginal tax rate is 40%. . If the company has a debt-to-equity ratio of 0.667, it will have $0.667 in debt for each $1.00 in equity. V= debt + equity = 0.667+1 = $1.667