Use the following information for questions in Problem 4:

The capital structure of Truman Industries, Inc. consists of bonds and common stock equity. TIs tax rate is 40%. The details on the various components of its capital structure are as follows:

Notes: Type: Fixed Quarterly Coupon, Non-callable

Maturity: 12 Years

Coupon rate: 4.00%

Par Value: $1,000

Current price: $820

Common Stock: Current price: $16.00

Last Annual Dividend (just paid): $0.95

Expected growth rate of dividends: 5.00%

Beta: 1.4

Risk free rate: 2.0%

Expected return of the market: 10.0%

a) What is the after-tax cost of debt of Notes?

b) What is the after-tax cost of equity of the Common Stock of TI? Explain briefly your choice of method in estimating cost of equity.

c) Trumans target capital structure consists is 30% debt with remainder in equity financing. Using costs of debt and equity in two parts above find TIs WACC.