1. Suppose that TapDance, Inc.’s, capital structure features 70 percent equity, 30 percent debt, and that its before-tax cost of debt is 6 percent, while its cost of equity is 11 percent. Assume the appropriate weighted average tax rate is 34 percent. What will be TapDance’s WACC?
2. Why does Warren Buffett invest in the insurance industry? What is meant by the term "float"? What is the role of "floats"?
3. KatyDid Clothes has a $170 million (face value) 20-year bond issue selling for 104 percent of par that carries a coupon rate of 13 percent, paid semiannually.
What would be KatyDid's before-tax component cost of debt?