1. Endrun Corporation has $1,000 par value bonds currently selling for $980. The bonds have a coupon rate of 10% and are paying interest semiannually. The bonds are due to reach maturity in 15 years. If Endrun's tax rate is 40%, what cost of debt should be used in arriving at the firm's weighted-average cost of capital?
A. 4.10%
B. 6.16%
C. 8.95%
D. 10.26%
2. The following relates to Ajax Corporation:
Capital Structure:
40% Common equity
15% Preferred stock
45% Debt
Additional Information:
Corporate tax rate = 34%
Preferred stock dividend = $8.50
Expected common share dividend = $2.50
Expected constant growth rate = 7.00%
Bond coupon rate = 11.00%
Bond yield = 9.50%
Price of preferred stock = $105.00
Price of common stock = $75.00
What is the weighted-average cost of capital for Ajax Corporation?
A. 6.24%
B. 7.78%
C. 8.17%
D. 9.52%