Problem:
Blue Bull, Inc., has a target debt-equity ratio of .55. Its WACC is 8.1 percent, and the tax rate is 35 percent.
Required:
Question 1: If the company's cost of equity is 11 percent, what is its pretax cost of debt?
Question 2: If the aftertax cost of debt is 3.8 percent, what is the cost of equity?
Note: Provide support for your rationale.