1. (10).Lucy Inc. has a bond with a $1,000 face value, and a coupon rate of 10%. A new issue would have a flotation cost of 5% of the $1,125 market value. The bond will mature in 40 years. Lucys marginal tax rate is 34%. What is the approximate after tax cost of this capital?

1. 6.1%
2. 7.1%
3. 8.1%
4. 9.1%

2. (11) The common stock of Lucy Inc. sells for $27.50 per share. If a new issue was to be sold the flotation costs would be 5%. Last years dividend was $1.80 and the anticipated growth for Lucy Inc. is 7%. What is the approximate cost of this anticipated new common stock?

1. 7.4%
2. 14.4%
3. 18.4%
4. 21.4%

3. (12) Lucy Inc. issued new preferred stock paying a 9% dividend on a $300.00 par value. The flotation costs will be 12% of the current price of $175.00. What is the cost of this capital?

1. 12.5%
2. 14.5%
3. 17.5%
4. 19.5%

13. The amount of capital held by Lucy Inc. is: Bonds $6,000,000, Common Stock-new of $9,600,000 and Preferred Stock of $8,400,000. Using the answers to Questions 10, 11, and 12 above what is the approximate weighted average cost of capital for Lucy Inc.?

a) 10.4%

b) 11.4%

c) 12.4%

d) 13.4%