Answer to Question #50988 in Finance for Asif

Question

Micro Spin offs Inc, issued 20-year debt a year ago at par value with a coupon rate of 9%, paid annually. Today, the debt is selling at $1050. If the firm's tax bracket is 35%, what is its after tax cost of debt?

1. Micro spinoffs also has preferred stock outstanding. The stock pays a dividend of $4 per share, and the stock sells for $40. What is the cost of preferred stock?

2. Suppose Micro Smirnoff's cost of equity is 12.5%. What is the WACC if equity is 50%, preferred stock is 20% and debt is 30% of total capital.