Question

1. You borrow the following from your friends: $1,400 from John and $600 from Mary. John charges you 5% and Mary charges you 10%. What is your combined before-tax cost of borrowing from your friends?

A.

15.00%

B.

$70

C.

$2,000

D.

6.50%

2. A company with a tax rate of 35% borrows $150M from Lender A at a cost of 9% and $350M from Lender B at a cost of 12%. What is the firm's aggregate cost of borrowing (a) before; and (b) after taxes?

A.

7.35%; 7.80%

B.

7.80%; 7.35%

C.

7.22%; 11.00%

D.

11.10%; 7.22%

3.Assume the current stock price is $40 per share, next year's dividend is expected to be $2.00 and dividends are expected to grow at 4% per year from here on out. What would be the cost of equity for this firm?

A.

8.50%

B.

9.20%

C.

9.00%

D.

6.00%

Answer 1