Question1: You were employed as a consultant to Kroncke Company, whose target capital structure is 40% debt, 10% preferred, and 50% common equity. The after-tax cost of debt is 6.00 percent, the cost of preferred is 7.50%, & the cost of retained earnings is 13.25%. The firm will not be issuing any new stock. Calculate its WACC?
Question2: P. Lange Inc. hired your consulting firm to help them estimate the cost of equity. The yield on Lange's bonds is 7.25%, & your firm's economists believe that the cost of equity can be estimated using a risk premium of 3.50 percent over a firm's own cost of debt. Determine an estimate of Lange's cost of equity from retained earnings?