Management of the “So Sad It Is Over Company” needs to determine its cost of capital in order to evaluate some large capital purchases. The company's bonds have a yield to maturity of 7%, last dividend paid on common stock was $1.60 per share, current stock price is $30/share, and constant growth of 5% is expected on dividends and earnings. The company's capital structure is 30% debt, 70% equity. There is no preferred stock and the marginal tax rate is 21%.

a) What is the after-tax cost of debt?

b) What is the cost of equity?

c) What is the company's cost of capital (WACC)?

Answer rating: 100% (QA)

a Yield to Maturity 7 Marginal Tax Rate 21 021 After tax cost of debt YTM 1 Tax Rate 7 1 021 ... View the full answer