Finance three multiple choice questions

Qu 1: Johnson Tire Distributors has an unlevered cost of capital of 12 percent, a tax rate of 34 percent, and expected earnings before interest and taxes of $1,400. The company has $2,800 in bonds outstanding that have a 7 percent coupon and pay interest annually. The bonds are selling at par value. What is the cost of equity?
A)9.51 percent

B)10.86 percent

C)8.15 percent

D)12.22 percent

E)13.58 percent

Please show workings.

Jemisen’s firm has expected earnings before interest and taxes of $1,800. Its unlevered cost of capital is 14 percent and its tax rate is 34 percent. The firm has debt with both a book and a face value of $2,700. This debt has a 7 percent coupon and pays interest annually. What is the firm’s weighted average cost of capital?
A)12.69 percent

B)12.86 percent

C)13.54 percent

D)13.16 percent

E)12.63 percent

Central Systems, Inc. desires a weighted average cost of capital of 6 percent. The firm has an after-tax cost of debt of 4 percent and a cost of equity of 8 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?





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