Question 49

Al's Audio has a cost of debt of 7 percent, a cost of equity of 12 percent, and a cost of preferred stock of 9 percent. The weight for debt is 0.16, the weight for preferred shares is 0.34, and the weight for common stock is 0.5. The company's tax rate is 34 percent. What is the weighted average cost of capital for Al's Audio Shop?

Select one:

a. 9.45 percent

b. 9.68 percent

c. 9.15 percent

d. 9.80 percent

e. 6.54 percent

Question 50

Ernst's Electrical has a bond issue outstanding with ten years to maturity. These bonds have a $1,000 face value, a 5 percent coupon, and pay interest annually. The bonds are currently quoted at 90 percent of face value. What is Ernst's pre-tax cost of debt?

Select one:

a. 6.38 percent

b. 6.47 percent

c. 5.33 percent

d. 5.53 percent

e. 5.40 percent