1.Erna Corp. has 8 million shares of common stock outstanding. The current share price is $73, and the book value per share is $7. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $85 million, has a 7 percent coupon, and currently trades for $93.5 million. The second issue has a face value of $50 million, has an 8 percent coupon, and currently trades for $64 million. The first issue matures in 21 years, the second in 6 years. The company corporate tax rate is 0%. What is Ernas weight on equity in the WACC formula?

A.0.764

B.0.788

C.0.214

D.0.812

2.If a firm issues $200 debt forever at an annual interest rate of 6% (cost of debt and coupon rate), what is the present value of interest tax shields? Assume the firm pays interest at the end of each year, debt is re-issued at the same rate when due, and the interest tax shields fall into the same risk class as the firms debt. The corporate tax rate is 27%, the firm equity beta is 1.3, and the risk-free interest rate is 3%.

3.Suppose that your company is expected to pay a dividend of $2 per share next year.

There has been a steady growth in dividends of 2% per year and the market expects that to continue. The current price is $30. The cost of equity is:

(Put the cost in percentages. If your answer is 11.1111% or 0.111111, then put in 11.11 .)