Question

Part A

Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table. If the corporate tax rate is 31 percent, what is the aftertax cost of Ying's debt?

  

Bond	Coupon Rate	Price Quote	Maturity	Face Value
1	5.7%	105	6 years	$ 23,000,000
2	6.9	113	9 years	39,000,000
3	5.7	106	23 years	50,000,000
4	7	120	36 years	56,000,000

Part B

Lannister Manufacturing has a target debt-equity ratio of 0.51. Its cost of equity is 20 percent, and its cost of debt is 10 percent. If the tax rate is 33 percent, what is the company's WACC?

Part C

Fama's Llamas has a weighted average cost of capital of 12 percent. The company's cost of equity is 17.5 percent, and its pretax cost of debt is 9 percent. The tax rate is 32 percent. What is the company's target debt-equity ratio?

Answer 1