1) David Ortiz Motors has target capital structure of 30% debt and 70% equity. Yield to maturity on company's outstanding bonds is 8%, and company's tax rate is= 40%. Ortiz's CFO has computed company's WACC as 9.54%. Determine the company's cost of equity capital?
Bond Yield and After-Tax Cost of Debt
2) A company's 8% coupon rate, semi-annual payment= $1,000 par value bond which matures in 30 years sells at the price of= $693.01. Company's federal-plus-state tax rate is= 30%. Determine the firm's after-tax component cost of debt for purposes of computing WACC?