Question 1: Company with a target structure of 60% debt and 40% common equity, with no preferred stock. The firm's cost of common equity is 12.5% and its WACC is 8.780%. If the firm's tax rate is 30% what is the before tax yield on this company's long term debt?
A. 8.4%
B. 9.0%
C. 9.8%
D. 8.2%
E. 9.4%
Question 2: This same company can finance its capital budget and retain earnings throughout the foreseeable future and its stock price is expected to grow at a constant rate. This company long-run sustainable return on equity (ROE) is 15% and the firm expects to maintain payout ratio of 70%. If this company uses the DCF approach to calculate its cost of retained earnings, what is the expected dividend yield on this company's stock
A. 2.0%
B. 2.9%
C. 8.0%
D. 4.5%
E. 6.1%
Please give spreadsheet to explain work.