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an 21 22 23 24 25 26 SECTION B Short Answer & Calculations All Questions...

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an 21 22 23 24 25 26 SECTION B Short Answer & Calculations All Questions in this Section is Compulsory (80 MARKS) QUESTION 1 COST OF CAPITAL (15 Marks) PART A (8 Marks) Luther Industries has 25 million shares outstanding trading at $18 per share. In addition, Luther has $150 million in outstanding debt. Suppose Luther's equity cost of capital is 13%, its debt cost of capital is 7%, and the corporate tax rate is 40%. Required: i. Calculate Luther's unlevered cost of capital: (2 Marks) ii. Calculate Luther's after-tax debt cost of capital: (2 Marks) Calculate Luther's weighted average cost of capital: (4 Marks) PART B (7 Marks)

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