Find the company after-tax cost of debt

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Reference no: EM132037971

1. Stevens Inc.'s 10 year bonds carry a 10% coupon rate and sell for $895. If the company issues new bonds, flotation costs will equal 3% of par. The company is in the 40% tax bracket. Find the company's after-tax cost of debt. Round intermediate steps to four decimals.

A. 0.0740

B. 0.1240

C. 0.0744

D. 0.1233

2. ABC's target capital structure is 30% common stock, 50% debt, and 20% preferred stock. The company's after-tax cost of debt is 8%, the cost of preferred stock is 10%, and the cost of common stock is 12%. The company's marginal tax rate is 20%. Find ABC's weighted average cost of capital.

A. 0.088

B. 0.064

C. 0.0808

D. 0.0768

E. None of the above

Reference no: EM132037971

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