Question 1: Suppose the 10-year Treasury rate is current 3.54 percent. You analyze your firm's financial ratios and determine that it is most similar to BB-rated firms, which currently have a spread over the 10-year Treasury of 400 basis points. Calculate your firm's cost of debt.
Question 2: Firm B expects to pay a dividend next year of $4 per share and that its dividend will grow at a constant rate of 5 percent indefinitely into the future. Firm B's stock price is currently $25 per share. Use the dividend discount model to calculate the cost of equity.