Lannister Manufacturing has a target debt-equity ratio of .70. Its cost of equity is 11 percent, and its cost of debt is 7 percent. If the tax rate is 21 percent, what is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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Targaryen Corporation has a target capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt. Its cost of equity is 11 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 23 percent.
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| a. |
What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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| b. | What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 19 years to maturity that is quoted at 97 percent of face value. The issue makes semiannual payments and has an embedded cost of 7 percent annually.
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| a. |
What is the company’s pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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| b. | If the tax rate is 23 percent, what is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
The Drogon Co. just issued a dividend of $3.30 per share on its common stock. The company is expected to maintain a constant 6.8 percent growth rate in its dividends indefinitely.
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If the stock sells for $66 a share, what is the company’s cost of equity?
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