1.The cost of debt for firm XYZ is 6%.It's tax rate is 40%. The cost of retained earnings is 12% and the cost of external common equity is 14%. Retained earnings is $5000. The target capital structure calls for 45% debt and 55% equity. Compute the following:

A. Retained earnings break point

B. WACC below the RE break point

C. WACC above the RE break point

2. The heuser company's currently outstanding bonds have a 10% coupon rate and a 12% yield to maturity. Heuser believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is heuser after tax cost of debt.