1. Temple-Midland, Inc. is issuing a $1,000 par value bond that pays 8.0 percent annual interest and matures in 15 years. Investors are willing to pay $950 for the bond and Temple faces a tax rate of 35 percent. What is Temple's after-tax cost of debt on the? bond? The after-tax cost of debt is %. (Round to two decimal places.)
2. The preferred stock of Walter Industries Inc. currently sells for $36.00 a share and pays $2.50 in dividends annually. What is the firm's cost of capital for the preferred? stock? The firm's cost of capital for the preferred stock is %. (Round to two decimal places.)
3. You want to develop a portfolio containing U.S. Treasury bills and two stocks that is equally as risky as the market. The securities will be equally weighted. If the beta of the first stock is 1.33, what does the beta of the second stock have to be?