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Terck, a leading pharmaceutical company, currently has a balance sheet that is as follows: Liabilities Assets Long-term Liab $ 1,000 Fixed Assets $ 1,700 Equity

Terck, a leading pharmaceutical company, currently has a balance sheet that is as follows:

Liabilities Assets
Long-term Liab $ 1,000 Fixed Assets $ 1,700
Equity $ 1,000 Currents Assets $ 300
Total $ 1,000 Total $ 1,000

The firm's income statement looks as follows:

Income Statement
Revenues $ 1,000
COGS $ 400
Depreciation $ 100
EBIT $ 500
Long-term Int. Exp $ 100
EBT $ 400
Taxes $ 200
Net Income $ 200

The firm's bonds are all 20-year bonds with a coupon rate of 10%that are selling at 90% of face value (the yield to maturity on these bonds is 11%). The stocks are selling at a P/E ratio of 9 and have a beta of 1.25. The risk free rate is 6%.

a. What is the firm's current cost of equity?

b. What is the firm's current after-tax cost of debt?

c. What is the firm's current weighted average cost of capital?

Market rate of return was not given. Assume 5.5%

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