1. To help estimate its cost of common equity, the Lincoln Company recently hired you. You have obtained the following data: D0 = $0.95; P0 = $27.25; and g = 7.50% (constant). Based on the DCF approach, what is the cost of common equity from reinvested earnings?
A. 9.29%
B. 9.68%
C. 10.50%
D. 11.25%
2. The Lincoln Company sold a $1,000 par value, noncallable bond several years ago that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $925 and the company's tax rate is 30%. What is the component cost of debt for use in the WACC calculation?
A. 4.28%
B. 4.46%
C. 4.65%
D. 5.42%