Use the following data to answer Questions 1 through 3: A company has a target debt-equity ratio of 0.667. The companys bonds with face value of $1,000 pay a 10% coupon (semiannual), mature on 20 years, and sell for $849.54 with a yield to maturity of 12%. The companys stock beta is 1.2. Risk-free rate is 10%, and market risk premium is 5%. The company is a constant-growth firm that just paid a dividend of $2, sells for $27 per share, and has a growth rate of 8%. The companys marginal tax rate is 40%. If the company has a debt-to-equity ratio of 0.667, it will have $0.667 in debt for each $1.00 in equity. V= debt + equity = 0.667+1 = $1.667.

1. The companys after-tax cost of debt is: *

A. 7.2%.

B. 8.0%

C. 9.1%.

D. 7.0%

E. None of the above

2. The companys cost of equity using the dividend discounted model is: *

A. 15.4%.

B. 16.0%.

C. 16.6%.

D. 16.9%.

E. None of the above

3. The companys weighted average cost of capital (using the cost of equity from CAPM) is closest to: *

A. 12.5%.

B. 13.0%.

C. 13.5%.

D. 15.0%.

E. None of the above