Question 1

KatyDid Clothes has a $180 million (face value) 20-year bond issue selling for 105 percent of par that carries a coupon rate of 7 percent, paid semiannually.

What would be KatyDid's before-tax component cost of debt?

Question 2

Suppose that LilyMac Photography expects EBIT to be approximately $650,000 per year for the foreseeable future, and that it has 2,000 10-year, 10 percent annual coupon bonds outstanding. (Use Table 11.1)

What would the appropriate tax rate be for use in the calculation of the debt component of LilyMacs WACC?