Big Hero Co. has 5,000 bonds outstanding. The bonds pay 4% annual coupons. The par value is $1,000. The bonds are selling at 98% of face value and mature in 20 years. In addition, there are 1 million shares of common stock outstanding with a market price of $30 a share. The common shares were sold at $20 per share when first issued. The stock just paid a dividend of $1.20 per share and expects to increase those dividends by 3% annually. The firm's tax rate is 40%. 12. What is the cost of equity based on the dividend growth model? A) 6.01% B) 7.12% C) 9.88% D) 8.45% E) 10.57% 13. If the flotation cost to issue external equity is 10% of the proceeds, what is the adjusted cost of equity that takes into consideration the flotation cost? A) 9.04% B) 6.70% C) 8.12% D) 10.33% E) 7.58% 14. What is the after-tax cost of debt financing? A) 3.78% B) 5.42% C) 4.56% D) 6.36% E) 2.49% 15. What weight should be given to debt in the WACC computation? A) 56.20% B) 14.04% C) 20.05% D) 78.33% E) 32.76% 16. A common-size income statement is defined as a financial statement wherein all items are expressed as a percentage of: A) their projected value. B) their 5-year average value. C) total assets. D) sales. E) their prior year's value.

Use the following to answer questions 12-15: Big Hero Co. has 5,000 bonds outstanding. The bonds pay 4% annual coupons. The par value is $1,000. The bonds are selling at 98% of face value and mature in 20 years. In addition, there are 1 million shares of common stock outstanding with a market price of $30 a share. The common shares were sold at $20 per share when first issued. The stock just paid a dividend of $1.20 per share and expects to increase those dividends by 3% annually. The firm's tax rate is 40%. | A) B) 12. What is the cost of equity based on the dividend growth model? 6.01% 7.12% 9.88% 8.45% 10.57% D) E) 13. If the flotation cost to issue external equity is 10% of the proceeds, what is the adjusted cost of equity that takes into consideration the flotation cost? 9.04% 6.70% 8.12% 10.33% 7.58% A) C) 14. What is the after-tax cost of debt financing? 3.78% 5.42% 4.56% 6.36% 2.49% | 15. What weight should be given to debt in the WACC computation? A) 56.20% 14.04% | 20.05% 178.33% 32.76% ID E) 16. A common-size income statement is defined as a financial statement wherein all items are expressed as a percentage of: their projected value. their 5-year average value. total assets. sales. their prior year's value. E