1. Suppose a company will issue new 20-year debt with a par value of $1,000 and a coupon rate of 9%, paid annually. The tax rate is 35%. If the flotation cost is 5% of the issue proceeds, then what is the after-tax cost of debt? Disregard the tax shield from the amortization of flotation costs.
2. Messman Manufacturing will issue common stock to the public for $30. The expected dividend and growth in dividends are $2.25 per share and 3%, respectively. If the flotation cost is 14% of the issue's gross proceeds, what is the cost of external equity?
3. A company's 7% coupon rate, semiannual payment, $1,000 par value bond that matures in 20 years sells at a price of $594.15. The company's federal-plus-state tax rate is 35%. What is the firm's after-tax component cost of debt for purposes of calculating the WACC? (Base your answer on the nominal rate).
