What is cost of existing debt

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1. New Jet Airlines plans to issue 16-year bonds with a par value of $1,000 that will pay $40 every six months. The bonds have a market price of $1,340. Flotation costs on new debt will be 7%. If the firm has a 35% marginal tax bracket, what is cost of existing debt?

2. GHJ Inc. is investing in a new project of $16 million. It will raise $4 million of bonds, $4 million of preferred stock, and $8 million of new common stock. If the after-tax cost of debt is 6%, cost of preferred stock is 10%, the cost of retained earnings is 16%, and the cost of new common stock is 19%, what is the WACC?

Reference no: EM132020179

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