1. RightOn Inc. is looking to acquire a small competitor. The market value of RightOns common stock is $100 million and the market value of their debt is $200 million. Analysts have calculated the cost of common equity to be 17.2% and the cost of debt to be 10%. If the marginal tax rate of RightOn Inc. is 34%, then what is the weighted average cost of capital?

a. 10.13%

b. 14.70%

c. 9.81%

d. 12.14%

e. 13.21%

2. A company is looking to invest in new machinery. The current financing is 40% debt, 40% common stock, and 20% preferred stock. The company anticipates the new debt issue will consist of 15-year $1,000 face-value bonds that will be priced at par. The bonds will pay an annual coupon of $75. Flotation costs for this new bond issue will be $15 per bond. The company has recently paid a dividend of $3.50 and is expecting to increase the dividend by 5% per year, indefinitely. The current share price for the companys common stock is $32. The company also plans to issue preferred stock that will pay a dividend per share of $7 per year in perpetuity. The market price of the preferred stock will be $60. The flotation costs of both the common stock issue and preferred stock issue will be $2.50 per share. If the companys marginal tax rate is 39%, then what is the Weighted Average Cost of Capital for this company?

a. 12.55%

b. 10.51%

c. 13.84%

d. 9.95%

e. 11.29%