1. Medford Medical Company has expected earnings before interest and taxes of $3,850,000, an unlevered cost of capital of 8.67 percent, and a tax rate of 34 percent. The company has $9,240,000 of debt that carries a 6.0 percent coupon. The debt is selling at par value. What is the value of this firm?
$45,930,184
$42,487,266
$38,206,915
$35,217,693
$32,449,558
2. An all equity firm has a cost of capital of 11 percent. The firm is considering switching to a debt-equity ratio of .50 with a pretax cost of debt of 6.0 percent. What will the firm's cost of equity be if the firm makes the switch? Ignore taxes.
13.84%
13.50%
13.16%
12.87%
12.51%