Reference no: EM132944252

Problem 1: The approximate after- tax cost of debt for a 20- year, 7 percent, $1,000 par value bond selling at $960 (assume a marginal tax rate of 40 percent) is

A) 4.43 percent.

B) 7 percent.

C) 7.35 percent.

D) 5.15 percent.

Problem 2: A firm has issued 10 percent preferred stock, which sold for $100 per share par value. The cost of issuing and selling the stock was $2 per share. The firm's marginal tax rate is 40 percent. The cost of the preferred stock is

A) 9.8 percent.

B) 3.9 percent.

C) 10.2 percent.

D) 6.1 percent.