Management of the “So Sad It Is Over Company” needs

Management of the “So Sad It Is Over Company” needs to determine its cost of capital in order to evaluate some large capital purchases. The company’s bonds have a yield to maturity of 7%, last dividend paid on common stock was $1.60 per share, current stock price is $30/share, and constant growth of 5% is expected on dividends and earnings. The company’s capital structure is 30% debt, 70% equity. There is no preferred stock and the marginal tax rate is 21%.

a) What is the after-tax cost of debt?

b) What is the cost of equity?

c) What is the company’s cost of capital (WACC)?