7a

Fama's Llamas has a weighted average cost of capital of 13 percent. The company's cost of equity is 16 percent, and its pretax cost of debt is 7.5 percent. The tax rate is 34 percent. What is the company's target debt-equity ratio?

Multiple Choice

• 0.354

• 0.5455

• 0.3913

• 0.3876

• 0.3727

7b

Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 19 years to maturity that is quoted at 97 percent of face value. The issue makes semiannual payments and has an embedded cost of 7 percent annually.

What is the company's pretax cost of debt?

multiple choice 1

• 7.29%

• 8.75%

• 5.62%

• 8.02%

• 6.56%

If the tax rate is 23 percent, what is the aftertax cost of debt?

multiple choice 2

• 5.62%

• 5.05%

• 6.18%

• 7.86%

• 7.29%