1. Stevenson's Bakery is an all-equity company that has projected perpetual earnings before interest and taxes of $43,700 a year. The cost of equity is 15.2 percent and the tax rate is 34 percent. The company can borrow money at 7.15 percent. If the company borrows $50,000, what will be its levered value?
$187,613
$189,919
$206,750
$229,507
$203,682
2. A firm has a cost of debt of 7.8 percent and a cost of equity of 15.6 percent. The debt-equity ratio is .52. There are no taxes. What is the firm's weighted average cost of capital?
11.76 percent
11.29 percent
12.93 percent
12.47 percent
10.20 percent