1. Calculating Cost of Debt Merchandise, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 14 years to maturity that is quoted at 114.00% of face value. The issue makes semiannual payments and has a coupon rate of 8.00% annually. What is Merchandise’s pretax cost of debt? If the tax rate is 35%, what is the after-tax cost of debt?
a. Pretax Cost of Debt: _______________ %
b. After-tax Cost of Debt: _______________ %
2. Calculating WACC Cutler Corporation has a target capital structure of 55.00% common stock, 5.00% preferred stock, and 40.00% debt. Its cost of equity is 16.00%, the cost of preferred stock is 10.00%, and the cost of debt is 9.00%. The relevant tax rate is 35.00%. What is Cutler’s WACC?
WACC: __________________ %