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1. Calculating Cost of Debt Merchandise, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 14 years to maturity that is quoted at 114.00% of face value. The issue makes semiannual payments and has a coupon rate of 8.00% annually. What is Merchandise's pretax cost of debt? If the tax rate is 35%, what is the after-tax cost of debt? a Pretax Cost of Debt: % Points: 10 b. After-tax Cost of Debt: % Points: 10 2. Calculating WACC Cutler Corporation has a target capital structure of 55.00% common stock, 5.00% preferred stock, and 40.00% debt. Its cost of equity is 16.00%, the cost of preferred stock is 10.00% and the cost of debt is 9.00%. The relevant tax rate is 35.00%. What is Cutler's WACC? WACC: % Points: 15 3. Taxes and WACC Einstein Engineering has a target debt-equity ratio of 0.90. Its cost of equity is 14.00% and its cost of debt is 6.50%. If the tax rate is 30.00%, what is Einstein's WACC? WACC % Points: 15 4. Calculating Flotation Costs Kalahari Conglomerate company needs to raise $55,000,000 to start a new project and will raise the money by selling new bonds. The company has a target capital structure of 65.00% common stock, 5.00% preferred stock, and 30.00% debt. Flotation costs for issuing new common stock are 10.00%, for new preferred stock, 10.00%, and for now debt, 7.00%. What is the true initial cost figure Kalahari should use when evaluating its project? Cost of Project Including Flotation Costs: $ Points: 15 5. Break Even EBIT Norfolk Nascent Corporation is comparing two different capital structures, an all equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Norfolk Nascent would have 200.000 shares of stock outstanding. Under Plan II, there would be 100.000 shares of stock outstanding and $1,000,000 in debt outstanding. The interest rate on the debt is 12.00% and there are no taxes a. I EBIT is $240,000, calculate EPS for Plan I and Plan II. Plan I EPS: $ Points: 5 Plan ll EPS: $ Points: 5 b. EBIT is $360,000, calculate EPS for Plan I and Plan II. Plan I EPS: $ Plan II EPS: $ Points: 5 Points: 5 C. The break-even EBIT is $_ Points: 15 Ch 14 & 16 Assignment 1 of 1