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1. USC Trees, Inc. has a debt to total market value ratio (i.e., D/V) of 7/12. Its WACC is 10 percent, and its cost of debt is 9 percent. The corporate tax rate is 33 percent. What is the firm's unlevered cost of equity capital?
a. 12.38%
b. 12.79%
c. 13.68%
d. 14.10%
e. 14.45%
2. USC Supply Corporation has a debt to firm value (i.e., D/V) of 4/9. The cost of equity is 14.5 percent and the aftertax cost of debt is 4.9 percent. What will the firm's cost of equity be if the debt-equity ratio is revised to 1, if we were in Case I of MM Theorem (i.e., no taxes, no bankruptcy costs et.al)?
a. 15.99%
b. 13.47%
c. 15.57%
d. 14.89%
e. Cannot determine with the information provided
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