The Alliance Manufacturing Co$.$ can buy a piece of equipment that is anticipated to provide a $10$ percent return and can be financed at $7$ percent with debt. Later in the year, the firm turned down an opportunity to buy a new machine that would yield a $15$ percent return but would cost $17$ percent to finance through common equity. Assume debt and common equity each represent $50$ percent of the firm$$s capital structure.

a$.$ Compute the weighted average cost of capital.

b$.$ Which project$($s$)$ should be accepted?

The Johnson Shoe Company can issue debt yielding $15$ percent. The company is paying a $30$ percent rate. What is the after$-$tax cost of debt?

The New Century Charitable Foundation, which is tax$-$exempt, issued debt last year at $8$ percent to help finance a new playground facility in Boston. This year the cost of debt is $15$ percent higher; that is$,$ firms that paid $10$ percent for debt last year would be paying $11\mathrm{.}5$ percent this year.

a$.$ If the New Century Charitable Foundation borrowed money this year, what would the after$-$tax cost of debt be$,$ based on its cost last year and the $15$ percent increase?

b$.$ If the Foundation was found to be taxable by the IRS $($at a rate of $35$ percent$)$ because it was involved in political activities, what would the after$-$tax cost of debt be$?$

The Trident Corporation can sell preferred stock for $$95$ with an estimated flotation cost of $$2\mathrm{.}50.$ It is anticipated the preferred stock will pay $$8$ per share in dividends.

a$.$ Compute the cost of preferred stock for Trident Corporation.

b$.$ Do we need to make a tax adjustment for the issuing firm?

The Wheeler Company issued $$80$ par value preferred stock $17$ years ago. The stock provided a $9$ percent yield at the time of issue. The preferred stock is now selling for $$62.$ What is the current yield or cost of the preferred stock? $($Disregard flotation costs.$)$

The Green Generation Motor Company wants you to calculate its cost of common stock. During the next $12$ months, the company expects to pay dividends $($D$1)$ of $$3\mathrm{.}50$ per share, and the current price of its common stock is $$70$ per share. The expected growth rate is $9$ percent.

a$.$ Compute the cost of retained earnings $($Ke$).$

b$.$ If a $$3$ flotation cost is involved, compute the cost of new common stock $($Kn$).$

World Laundry Supplies capital structure is as follows:

Debt $............................40\%$

Preferred stock $...........15\%$

Common equity.......... $45\%$

The after$-$tax cost of debt is $7\mathrm{.}0$ percent; the cost of preferred stock is $10$ percent; and the cost of common equity $($in the form of retained earnings$)$ is $13\mathrm{.}5$ percent. Calculate World Laundry Supplies weighted average cost of capital.