5-To help finance a major expansion, Castro Chemical Company sold a noncallable bond several years ago that now has 20 years to maturity. This bond has a 9.25% annual coupon, paid semiannually, sells at a price of $875, and has a par value of $1,000. If the firm's tax rate is 25%, what is the component cost of debt for use in the WACC calculation?

6.60%

7.77%

7.30%

6.47%

8.09%

6- Trahan Lumber Company hired you to help estimate its cost of capital. You obtained the following data: D₁ = $1.25; P₀ = $20.00; g = 5.00% (constant); and F = 6.00%. What is the cost of equity raised by selling new common stock?

13.98%

11.65%

12.35%

11.07%

13.75%

7- Assume that Kish Inc. hired you as a consultant to help estimate its cost of capital. You have obtained the following data: D₀ = $0.90; P₀ = $47.50; and g = 7.00% (constant). Based on the DCF approach, what is the cost of equity from retained earnings?

10.11%

7.22%

11.28%

6.95%

9.03%

8-Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D₁ = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $87.50 a share. The before-tax cost of debt is 7.50%, and the tax rate is 25%. The target capital structure consists of 45% debt and 55% common equity. What is the companys WACC if all the equity used is from retained earnings?

5.69%

6.62%

7.35%

7.13%

5.10%