6. You were hired as a consultant to Quigley Company, whose target capital structure is 30% debt, 15% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of retained earnings is 11.25%, and the tax rate is 40%. The firm will not be issuing any new stock. What is Quigley's WACC? *

A. 8.15%

B. 8.26%

C. 8.82%

D. 9.17%

E. 9.54%

7. A. Butcher Timber Company hired your consulting firm to help them estimate the cost of equity. The yield on the firm's bonds is 8.75%, and your firm's economists believe that the cost of equity can be estimated using a risk premium of 5% over a firm's own cost of debt. What is an estimate of the firm's cost of equity from retained earnings? *

A. 12.60%

B. 13.75%

C. 13.63%

D. 14.17%

E. 14.74%

8. Keys Printing plans to issue a $1,000 par value, 20-year noncallable bond with an 8.00% annual coupon, paid semiannually. The company's marginal tax rate is 40.00%, but Congress is considering a change in the corporate tax rate to 30.00%. By how much would the component cost of debt used to calculate the WACC change if the new tax rate was adopted? *

A. 0.57%

B. 0.63%

C. 0.70%

D. 0.77%

E. 0.80%

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