1. XYZ Company is undergoing a major expansion. The expansion will be financed by issuing new 16-year, $1,000 par, 8% annual coupon bonds. The market price of the bonds is $1,020 each. Flotation expense on the new bonds will be $60 per bond. The marginal tax rate is 35%. What is the post-tax cost of debt for the newly-issued bonds?
2. ABC Corporation will issue new common stock to finance an expansion. The existing common stock just paid a $1.25 dividend, and dividends are expected to grow at a constant rate of 9% indefinitely. The stock sells for $48, and flotation expenses of 5% of the selling price will be incurred on new shares. What is the cost of new commonstock?