1. A company wants to have a weighted average cost of capital of 9.00%. The firm has an after-tax cost of debt of 4.8% and a cost of equity of 12%. 

What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital? 

2. A company has 20,000 bonds outstanding with a face value of $1,000 per bond. The bonds carry a 5% coupon, pay interest annually, and mature in 15 years. The bonds are selling at 97% of par. The company's tax rate is 15%. 

What should be the company's after-tax cost of debt?

3. A company has just set next year's dividend at $4.70 a share. The company also announced that all future dividends will increase by 5% annually. 

What is the maximum amount you should pay to purchase a share of the company's stock if your goal is to earn a 13.6% rate of return?

Answer rating: 100% (QA)

1The weighted average cost of capital WACC can be calculated as follows WACC EV x Re DV x Rd x 1 T W... View the full answer