Q1. Walker Inc., is trying to determine its price debt. Firm has a debt issue outstanding with 15 years to maturity that is quoted at 107% of face value. The issue makes semi-annual payments and has an embedded cost of 7% annually. Illustrate what is the company's pretax cost of debt?
If the tax rate is 35%, Illustrate what is the after tax cost of debt?
Q2. Assume that the demand for car loans in the Milwaukee area is $10 million per month at an interest rate of 10% every year $11 million at an interest rate of 9 percent per year, $12 million at an interest rate of 8 percent per year, and so on. If the provider of loan able funds is fixed at $16 million, illustrate what will be the equilibrium interest rate?