Problem:
Blue Bull, Inc., has a target debt-equity ratio of .78. Its WACC is 8.7 percent, and the tax rate is 38 percent
Requirement:
a. If the company's cost of equity is 11.8 percent, what is its pretax cost of debt?
b. If the aftertax cost of debt is 6 percent, what is the cost of equity?
Note: Please provide reasons to support your answer.