Approximate after-tax cost of debt for new issue of bonds

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Reference no: EM131616338

1. Coca Cola has an optimal capital structure that is 60% common equity, 30% debt, and 10% preferred stock. Coca Cola's cost of equity is 10%. Its cost of preferred equity is 5%, and its pretax cost of debt is 6%. If the corporate tax rate is 30%, what is the weighed average cost of capital

a 8.76%

b 7.76%

c 6.76%

d 5.76%

2. The coupon rate on an issue of debt is 10%. The yield to maturity on this issue is 12%. The corporate tax rate is 30%. What would be the approximate after-tax cost of debt for a new issue of bonds

a 7.5%

b 7%

c 8.1%

d 8.4%

Reference no: EM131616338

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