1. Portnoy Corp. has a target capital structure of 60 percent common stock and 40 percent debt. Its cost of equity is 12 percent, and the cost of debt is 7 percent. The relevant tax rate is 35 percent. What is Portnoy’s WACC?
A. 9.48 %
B. 9.02%
C. 10.25%
D. 9.65%
E. Impossible to calculate with information given.
2. Henry is trying to determine Franco Inc’s cost of debt. The firm has a debt issue outstanding with 17 years to maturity that is quoted at 90 percent of face value. The issue makes semiannual payments and has a coupon rate of 6 percent annually. What is Franco Inc’s pretax cost of debt? If the tax rate is 35 percent, what is the after tax cost of debt?
A. Pre Tax: 8.39%, After Tax: 6.75%
B. Pre Tax: 7.02%, After Tax: 4.56%
C. Pre Tax: 11.55%, After Tax: 7.51%
D. Pre Tax: 9.65%, After Tax: 8.22%
E. Impossible to calculate with information given.