Problem 12-1

Neotech Corporation's 14 percent coupon rate, semiannual payment, $1,000 par value, 30-year bonds currently sell at a price of $1,353.54. If its marginal tax rate is 40 percent, what is Neotec's after-tax cost of debt?

Problem 12-17

The Gupta Company's cost of equity is 16 percent. Its before-tax cost of debt is 13 percent, and its marginal tax rate is 40 percent. The stock sells at book value. Using the following balance sheet, calculate Gupta's after-tax weighted average cost of capital:

Assets Liabilities and Equity

Cash $120 Long-term debt $1,152

Accounts receivable 240 Equity 1,728

Inventories 360

Net plant and equipment 2,160 ______

Total assets $2,880 $2,880