1. Bruce & Co. expects its EBIT to be $149,000 every year forever. The firm can borrow at 11 percent. Bruce currently has no debt, and its cost of equity is 18 percent. The tax rate is 34 percent. Bruce will borrow $61,000 and use the proceeds to repurchase shares. What will the WACC be after recapitalization?
16.87 percent
18.57 percent
18.29 percent
18.86 percent
17.34 percent
2. Percy's Wholesale Supply has earnings before interest and taxes of $121,000. Both the book and the market value of debt is $190,000. The unlevered cost of equity is 14.7 percent while the pretax cost of debt is 8.6 percent. The tax rate is 35 percent. What is the firm's weighted average cost of capital?
12.65 percent
14.01 percent
13.07 percent
11.94 percent
14.37 percent