1. 1 Winter's Toyland has a debt-to-equity ratio of 0.65. The pretax cost of debt is 8.7 percent and the required return on assets is 16.1 percent. What is the cost of equity if you ignore taxes? (Round to 2nd decimal XX.XX%)
2. 2 Douglass & Frank has a debt-to-equity ratio of 0.35. The pretax cost of debt is 8.2 percent, while the unleveraged cost of equity is 13.3 percent. What is the cost of capital if the tax rate is 39 percent? (Round to 2nd decimal XX.XX%)
3. 3 DL Tuckers has $21,000 of outstanding debt that is selling at par and has a coupon rate of 7.5 percent. The tax rate is 32 percent. What is the current value of the tax shield?
4. 4 Bruce & Co. expects its EBIT to be $100,000 each year forever. The company can borrow at 10 percent. Bruce currently has no debt and his cost of capital is 20 percent. The tax rate is 34 percent. What will Bruce & Co. be worth if the company borrows $54,000 and uses the loan proceeds to buy back stock?
5. 4 Becker Industries is considering an all-equity capital structure versus one with debt and equity. The entire capital structure would consist of 26,000 shares. The debt and equity option would consist of 13,000 shares plus $245,000 of debt at an interest rate of 9 percent. What is the equilibrium level of earnings before interest and taxes between these two options? ignore taxes