1) A company's CFO wishes to sustain the target debt-to-equity ratio of ¼ (this involves that D/E = 0.25%). If WACC= 18.6%, and pre-tax cost of debt=9.4%, calculate the cost of common equity (rs) assuming tax rate= 34%?
2) Assume a company has= 30,000 shares of common stock outstanding at the market price= $15.00 a share. This stock was initially issued at= $31 per share. Firm also has bond issue outstanding with total face value= $280,000 which is selling for 86% of par. Cost of equity is 13% whereas the after tax cost of debt is 6.9%. The firm has a beta of 1.48 and a tax rate of 30%. Determine the weighted average cost of capital?
3) Best Mattress has the overall beta of 0.79 and the cost of equity of 11.2% for firm overall. Firm is 100% financed with common stock. Division X in the firm has the estimated beta of= 1.08 and is riskiest of all of firm's operations. What is an suitable cost of capital for Division X if market risk premium is 9.5%?