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1. Barry Bank issued a 25-year, 3 percent semiannual bond seven years ago. The bond currently sells for 107 percent of its face value. The companyĂ˘â‚¬â„˘s tax rate is 21 percent.
1. What is the pretax cost of debt?
2. What is the after-tax cost of debt?
3. Which is more relevant, the pretax or the after-tax cost of debt? Why?

1. The Chole CorporationĂ˘â‚¬â„˘s common stock has a beta of .91. If the risk-free rate is 2.5 percent and the market risk premium is 6.75 percent, what is the companyĂ˘â‚¬â„˘s cost of equity capital?
1. FreddyĂ˘â‚¬â„˘s Farm has an issue of preferred stock with a stated dividend of \$3.82 that just sold for \$94 per share. What is the bankĂ˘â‚¬â„˘s cost of preferred stock?

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1. Mahomes Manufacturing needs to raise \$100 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 40 percent common stock, 5 percent preferred stock, and 55 percent debt. Flotation costs for issuing new common stock are 6 percent, for new preferred stock, 4 percent, and for new debt, 3 percent. What is the true initial cost figure the company should use when evaluating its project?
1. Given the following information for Watson Power Co., find the WACC. Assume the companyĂ˘â‚¬â„˘s tax rate is 21 percent. Debt: 20,000 bonds with a 6.8 percent coupon outstanding, \$1,000 par value, 20 years to maturity, selling for 95 percent of par; the bonds make semiannual payments.

Common stock: 1,025,000 shares outstanding, selling for \$54 per share; the beta is 1.20.

Preferred 45,000 shares of 2.8 percent preferred stock outstanding, currently stock: selling for \$60 per share. Assume par value is \$90.

Market: 9 percent market risk premium and 2.2 percent risk-free rate.

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