1. Stevens Inc.'s 10 year bonds carry a 10% coupon rate and sell for $895. If the company issues new bonds, flotation costs will equal 3% of par. The company is in the 40% tax bracket. Find the company's after-tax cost of debt. Round intermediate steps to four decimals.
A. 0.0740
B. 0.1240
C. 0.0744
D. 0.1233
2. ABC's target capital structure is 30% common stock, 50% debt, and 20% preferred stock. The company's after-tax cost of debt is 8%, the cost of preferred stock is 10%, and the cost of common stock is 12%. The company's marginal tax rate is 20%. Find ABC's weighted average cost of capital.
A. 0.088
B. 0.064
C. 0.0808
D. 0.0768
E. None of the above