1. The Holmes Company's currently outstanding bonds have a 9% 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.

2. Torch Industries can issue perpetual preferred stock at a price of $71.50 a share. The stock would pay a constant annual dividend of $7.00 a share. What is the company's cost of preferred stock, r_p? Round your answer to two decimal places.