Problem: The current interest rate on new debt is9%. The firm's marginal tax rate is 40%. It's capital structure, considered to be optimal, is as follows:
Debt $104,000,000
Common equity $156,000,000
Total liabilities and equity $260,000,000
Q1. Calculate Foust's after-tax cost of new debt and common equity. Calculate the cost of equity as D1/P0+g.
8.42/65.00+8%
Q2. Find Foust's weighted average cost of capital.