5. Problem 10.08 (Cost of Common Equity and WACC)

Palencia Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. Its before-tax cost of debt is 10%, and its marginal tax rate is 25%. The current stock price is P₀ = $24.00. The last dividend was D₀ = $3.25, and it is expected to grow at a 4% constant rate. What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal places.

r_s = %

WACC = %

6. Problem 10.11 (WACC and Percentage of Debt Financing)

Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at r_d = 12%, and its common stock currently pays a $3.50 dividend per share (D₀ = $3.50). The stock's price is currently $31.25, its dividend is expected to grow at a constant rate of 7% per year, its tax rate is 25%, and its WACC is 14.75%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places.

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