q.13 .1 & 2

QUESTION 1 You have estimated the after-tax cost of debt to be 9%, the after-tax cost of preferred stock to be 5%, and the after-tax cost of equity to be 12%. If the target capital structure is 20% debt. 70% common stock, and the reminder preferred stock, what is the firm's WACC? Assume a tax rate of 40% Hints: Reminder after-tax = before-tax (1-T). What one cost needs to be adjusted? Are you given before-tax costs or after-tax costs? Weights have to add up to the whole which is always 222 2 points QUESTION 2 You have estimated the before-tax cost of debt to be 8%, the before-tax cost of preferred stock to be 4.4%, and the before-tax cost of equity to be 10%. If the target capital structure is 40% debt, 10% preferred stock, and the reminder common stock, what is the firm's WACC? Assume a tax rate of 40%. Hints: Reminder: after-tax before-tax*(1-T). What one cost needs to be adjusted? Are you given before-tax costs or after-tax costs? Weights have to add up to the whole which is always...??? 2