Part 1. Micro Spinoffs, Inc. is issued a 20-year debt a year ago at par value with a coupon rate of 8%, paid annually. Today the debt is selling at $1,050. If the firm's tax bracket is 35%, what is its after-tax cost of debt?
Part 2. Micro Spinoffs also has preferred stock outstanding. The stock pays a dividend of $4/share, and the stock sells for $40. What is the cost of the preferred stock?