1. Jack Tire Manufacturer maintains a capital structure of 45% debt and 55% equity. Their tax rate of 30 percent. The firm has no preferred stock issued. Their cost of equity is 13.5% and the after-tax cost of debt is 4.5 percent. What is the weighted average cost of capital?
a. 14.68 percent
b. 13.29 percent
c. 13.67 percent
d. 14.29 percent
e. 9.45 percent
2. Michael’s Lawn Service has 2,000 bonds outstanding. These bonds are selling for $800 each. His company also has 1,500 shares of preferred stock with a market price of $32 a share. His common stock is priced at $42 a share and there are 32,000 shares outstanding. What is the weight of the common stock as it relates to the firm's weighted average cost of capital?
a. 43.08 percent
b. 46.18 percent
c. 47.11 percent
d. 44.92 percent
e. 55.45 percent