Malik Brothers has a stock price of $45. In the fiscal year just ended, dividends were $2.00. Earnings per share and dividends are expected to increase at an annual rate of 9 percent. The risk-free rate is 5 percent, the market risk premium is 6.4 percent and the beta on Maliks stock is 1.25. Maliks target capital structure is 40% debt and 60% common equity. Maliks tax rate is 40 percent. New common stock can be sold to net $35 per share after flotation costs. Delta can sell bonds that mature in 25 years with a par value of $1,000 and an 8% coupon rate paid annually for $960.

1. Calculate the before-tax interest rate on new debt financing.

2. Calculate the required return on the firms stock using CAPM.

3. Calculate the required return on the firms stock using the discounted cash flow approach.

4. Calculate the cost of equity from the sale of common stock.

5. Calculate the WACC if equity financing is from retained earnings.

6. Calculate the WACC if equity financing is from the sale of common stock.