Allia’s Co. has a capital structure that consists of $75,000 common equity and $40,000 of long-term debt.

• The company estimates that it can issue debt at a before tax cost of 9%, and its tax rate is 40%.

• The company’s common stock currently sells at $30 per share. The year-end dividend, , is expected to be $2.50, and the dividend is expected to grow at a constant rate of 6% per year.

Questions 6→10 refers to Case Two.

6. Allia’s weight of debt is:

A.40%

B.34.78%

C.65.22%

D.9.00%

7. Allia’s weight of common equity is:

A.65.22%

B.34.78%

C.6.00%

D.75.00%

8. The after tax cost of debt for Allia’s is:

A.3.6%

B.9.0%

C.5.4%

D.5.0%

9. The cost of common equity for Allia’s is:

A.32.5%

B.14.33%

C.8.33%

D.6.00%

10. The Weighted Average Cost of Capital for Allia’s is:

A.100.00%

B.19.73%

C.9.87%