1. To help finance a major expansion, Castro Chemical Company sold a noncallable bond several

years ago that now has 20 years to maturity. This bond has a 9.25% annual coupon, paid

semiannually, sells at a price of $1,025, and has a par value of $1,000. If the firm's tax rate is

40%, what is the component cost of debt for use in the WACC calculation? Do not round your

intermediate calculations.

a. 5.93%

b. 5.93%

c. 5.39%

d. 6.09%

e. 4.69%

2. Trahan Lumber Company hired you to help estimate its cost of capital. You obtained the

following data: D1 = $1.25; P0 = $22.50; g = 5.00% (constant); What is the cost of equity raised

by selling new common stock?

a. 8.84%

b. 10.91%

c. 11.78%

d. 10.58%

e. None of the above