1. 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. __%

2. Torch Industries can issue perpetual preferred stock at a price of $66.00 a share. The stock would pay a constant annual dividend of $5.50 a share. What is the company's cost of preferred stock, r_p? Round your answer to two decimal places. ___ %

3. Pearson Motors has a target capital structure of 45% debt and 55% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 11%, and its tax rate is 25%. Pearson's CFO estimates that the company's WACC is 10.00%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. ___ %

4. Jarett & Sons's common stock currently trades at $24.00 a share. It is expected to pay an annual dividend of $1.00 a share at the end of the year (D₁ = $1.00), and the constant growth rate is 3% a year.

1. What is the company's cost of common equity if all of its equity comes from retained earnings? Do not round intermediate calculations. Round your answer to two decimal places.

   %

2. If the company issued new stock, it would incur a 13% flotation cost. What would be the cost of equity from new stock? Do not round intermediate calculations. Round your answer to two decimal places.

   %

5. The Evanec Company's next expected dividend, D₁, is $3.36; its growth rate is 6%; and its common stock now sells for $34.00. New stock (external equity) can be sold to net $32.30 per share.

1. What is Evanec's cost of retained earnings, r_s? Do not round intermediate calculations. Round your answer to two decimal places.

   r_s = %

2. What is Evanec's percentage flotation cost, F? Round your answer to two decimal places.

   F = %

3. What is Evanec's cost of new common stock, r_e? Do not round intermediate calculations. Round your answer to two decimal places.

   r_e = %

6. Palencia Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. Its before-tax cost of debt is 11%, and its marginal tax rate is 25%. The current stock price is P₀ = $22.50. The last dividend was D₀ = $2.50, and it is expected to grow at a 4% constant rate. What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal places.

r_s = %

WACC = %

7.

The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 18%, its before-tax cost of debt is 11%, and its marginal tax rate is 25%. Assume that the firm's long-term debt sells at par value. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals $1,141. The firm has 576 shares of common stock outstanding that sell for $4.00 per share.

Assets			Liabilities And Equity
Cash	$ 120		Accounts payable and accruals	$ 10
Accounts receivable	240		Short-term debt	41
Inventories	360		Long-term debt	1,100
Plant and equipment, net	2,160		Common equity	1,729
Total assets	$2,880		Total liabilities and equity	$2,880

Calculate Paulson's WACC using market-value weights. Do not round intermediate calculations. Round your answer to two decimal places.

%

8. Banyan Co.s common stock currently sells for $37.75 per share. The growth rate is a constant 8%, and the company has an expected dividend yield of 5%. The expected long-run dividend payout ratio is 20%, and the expected return on equity (ROE) is 10.0%. New stock can be sold to the public at the current price, but a flotation cost of 15% would be incurred. What would be the cost of new equity? Do not round intermediate calculations. Round your answer to two decimal places.

___ %

9. Travis Industries plans to issue perpetual preferred stock with an $11.00 dividend. The stock is currently selling for $93.00, but flotation costs will be 9% of the market price, so the net price will be $84.63 per share. What is the cost of the preferred stock, including flotation? Round your answer to two decimal places.

___ %

10. Kahn Inc. has a target capital structure of 55% common equity and 45% debt to fund its $11 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 14%, a before-tax cost of debt of 9%, and a tax rate of 25%. The company's retained earnings are adequate to provide the common equity portion of its capital budget. Its expected dividend next year (D₁) is $3, and the current stock price is $27.

1. What is the company's expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places.

   %

2. If the firm's net income is expected to be $1.1 billion, what portion of its net income is the firm expected to pay out as dividends? Do not round intermediate calculations. Round your answer to two decimal places. (Hint: Refer to Equation below.)

   Growth rate = (1 - Payout ratio)ROE

   %