1. A firm has a total market value of $100 million. The market value of debt is $40 million and that of equity is %60 million. The after tax cost of debt is 12% and that of equity is 18%. Calculate the weighted average cost of capital: (Assume tax rate T = 35%)
a.) 12.32% b.) 13.92% c.) 13.2% d.) 15.6%
2. Michigan Corporation has its common stock selling for $50/share and the current dividend (D0) is $2.00/share. If dividends are expected to grow at 8% per year ; then the firms cost of retained earnings is:
a.) 10.4% b.) 12.8% c.) 12.32% d.) 9.86% please show your work