Cost of debt) Rework Problem 9-12 as follows: Assume a 16 percent coupon rate.
a. What effect does changing the coupon rate have on the firm’s after-tax cost of capital?
b. Why is there a change?
2. Capital structure weights) Wingate Metal Products, Inc. sells materials to contractors who construct metal warehouses, storage buildings, and other structures. The firm has estimated its weighted average cost of capital to be 9.0 percent based on the fact that its after-tax cost of debt financing was 7 percent and its cost of equity was 12 percent. What are the firm’s capital structure weights (that is, the proportions of financing that came from debt and equity)?
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