Question

1 A: Western Gas & Electric Company (WGC) can borrow funds at an interest rate of 12.50% for a period of five years. Its marginal federal-plus-state tax rate is 25%. What is WGC's after-tax cost of debt?

Possible Answers: 3.83%, 5.75%, 9.38%, 6.88%

1 B: At the present time, Western Gas & Electric Company (WGC) has 5-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,050.76 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 45%. If WGC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt?

Possible Answers: 5.75%, 4.31%, 4.79%, 3.83%

***Question: This question has already been answered on Chegg but the answer does not match my possible answers.

Kuhn Co. is considering a new project that will require an initial investment of $4 million. It has a target capital structure of 35% debt, 2% preferred stock, and 63% common equity. Kuhn has noncallable bonds outstanding that mature in five years with a par value of $1,000, an annual coupon rate of 10%, and a market price of $1,050.76. The yield on the company's current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell shares of preferred stock that pay an annual dividend of $8 at a price of $92.25 per share.

Kuhn does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $22.35 per share, and is expected to pay a dividend of $2.78 at the end of next year. Floatation costs will represent 3% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 9.2%, and they face a tax rate of 40%. What is the Kuhn Company's WACC for this project?

Possible Answers: 17.84%, 13.26%, 11.26%, 16.23%

Answer 1

PS : The concept used are correct. I have checked the calculations aswell. The answer maybe an approximation. However, in case of any doubt or clarification, please do that in the comment section. Will be grateful to help.