1. Central Systems, Inc. desires a weighted average cost of capital of 8 percent. The firm has an after tax cost of debt of 4 percent and a cost of equity of 12 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?
2. An individual plans to buy a stock valued at $65 each and keep it for 7 years at which point he things he can sell it for $85. The stock pays an annual dividend of $2.50. What is equivalent annual interest rate being generated by this investment?