1. Determine the (after-tax) percentage cost of a $50 million debt issue that the Mattingly Corporation is planning to place privately with a large insurance company. Assume that the company has a 40% marginal tax rate. This long-term debt issue will yield 20% to the insurance company.

4.8%

7.2%

12.0%

10.6%

2. Guchli Atunch has a beta of 1.2. If their current SML is expected to be kj = 0.10 + 0.12 Bj where kj is the required rate of return and Bj is the beta, what would the required rate of return change to if the inflation expectation goes down from 8% to 6%?

12.96%

13.6%

24.4%

22.4%