$9-16.$ Margo Channing, the financial analyst for Eve's Broadway Production Company,

has been asked by management to estimate a cost of equity for use in the analysis

of a project under consideration. In the past, dividends declared and paid have been

very sporadic. Because of this, Ms$.$ Channing elects to use the CAPM approach

to estimate the cost of equity. The rate on the short$-$term U$.$S$.$ Treasury bills is $3$

percent, and the expected rate of return on the overall stock market is $11$ percent.

Eve's Broadway Production Company has a beta of $1\mathrm{.}6.$ What will Ms$.$ Channing

report as the cost of equity?

Weighted Average Cost of Capital

$9-20.$ Great Expectations, a wedding and maternity clothing manufacturer, has a cost of

equity of $16$ percent and a cost of preferred stock of $14$ percent. Its before$-$tax cost

of debt is $12$ percent, and its marginal tax rate is $40$ percent. Assume that the most

recent balance sheet shown here reflects the optimal capital structure. Calculate Great

Expectations' after$-$tax WACC.

Great Expectations Balance Sheet

Dec. $31,2021$