1. Torch Industries can issue perpetual preferred stock at a price of $64.00 a share. The stock would pay a constant annual dividend of $5.50 a share. What is the company's cost of preferred stock, rp? Round your answer to two decimal places.
2. The Holmes Company's currently outstanding bonds have a 8% coupon and a 13% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 40%, what is Holmes's after-tax cost of debt? Round your answer to two decimal places.