a. MGFC10 Industries (MI) has 1 million shares of common stock outstanding. The current share price is $50 per share. The most recent dividend was $6 and the growth rate is -2%. MI also has a bond issue outstanding, which is maturing in 20 years, has a face value of $40 million, 7% coupon payable annually, and sells for 111.46992% of the face value. MI also has 500,000 preferred shares outstanding, which are currently selling for $70 per Share and pay a dividend of $4.90 per year. The corporate tax rate is 40%. Determine the weighted average cost of capital?

b. LeverHigh Inc has a target debt/equity ratio of 2, weighted average cost of capital of 10% and the corporate tax rate of 30%. 1. If the cost of equity is 15% then what is the pretax cost of debt? 2. If instead you know before tax cost of debt is 12%, what is the cost of equity?