1. Oberon, Inc., has a $25 million (face value) 10-year bond issue selling for 96 percent of par that pays an annual coupon of 8.40 percent.
What would be Oberon’s before-tax component cost of debt?
2. OMG Inc. has 7 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 4,000 bonds. Suppose the common shares are selling for $30 per share, the preferred shares are selling for $29 per share, and the bonds are selling for 109 percent of par.
What weight should you use for debt in the computation of OMG’s WACC?