Jiminys Cricket Farm issued a bond with 15 years to maturity and a semiannual coupon rate of 10 percent 4 years ago. The bond currently sells for 91 percent of its face value. The companys tax rate is 35 percent.

a.	What is the pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Pretax cost of debt

%

b.	What is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Aftertax cost of debt

%

c.

Which is more relevant, the pretax or the aftertax cost of debt?

	Aftertax cost of debt
	Pretax cost of debt

Dinklage Corp. has 6 million shares of common stock outstanding. The current share price is $89, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $85 million, a coupon rate of 6 percent, and sells for 96 percent of par. The second issue has a face value of $60 million, a coupon rate of 7 percent, and sells for 109 percent of par. The first issue matures in 21 years, the second in 9 years.

Suppose the most recent dividend was $6.10 and the dividend growth rate is 8 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 35 percent. What is the companys WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

WACC	%
You are given the following information for Watson Power Co. Assume the companys tax rate is 30 percent.

Debt:	9,000 6.4 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 107 percent of par; the bonds make semiannual payments.
Common stock:	360,000 shares outstanding, selling for $54 per share; the beta is 1.10.
Preferred stock:	14,000 shares of 4 percent preferred stock outstanding, currently selling for $74 per share.
Market:	11 percent market risk premium and 4.4 percent risk-free rate.

What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

WACC	%
Titan Mining Corporation has 8.4 million shares of common stock outstanding, 280,000 shares of 6 percent preferred stock outstanding, and 150,000 7.2 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $32 per share and has a beta of 1.20, the preferred stock currently sells for $82 per share, and the bonds have 20 years to maturity and sell for 113 percent of par. The market risk premium is 7.2 percent, T-bills are yielding 5 percent, and the companys tax rate is 40 percent.

a.	What is the firms market value capital structure? (Do not round intermediate calculations. Round your answers to 4 decimal places, e.g., 32.1616.)

	Market value weight
Debt
Preferred stock
Equity

b.	If the company is evaluating a new investment project that has the same risk as the firms typical project, what rate should the firm use to discount the projects cash flows? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Discount rate

%

Caughlin Company needs to raise $55 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 55 percent common stock, 15 percent preferred stock, and 30 percent debt. Flotation costs for issuing new common stock are 7 percent, for new preferred stock, 4 percent, and for new debt, 2 percent.

What is the true initial cost figure the company should use when evaluating its project? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your final answer to the nearest whole dollar amount, e.g., 32.)

Initial cost

$