Q1: S. Bouchard and Company hi

Q1:

S. Bouchard and Company hired you as a consultant to help
estimate its cost of capital. You have obtained the following data:
D0 = $2.93; P0 = $41.00; and g = 5.00% (constant). The
CEO thinks, however, that the stock price is temporarily depressed,
and that it will soon rise to $49.00. Based on the DCF approach,
how much would the cost of equity from retained earnings change if
the stock price changes as the CEO expects? Do not round your
intermediate calculations.

Q2:

To help finance a major expansion, Castro Chemical Company sold
a noncallable bond several years ago that now has 11 years to
maturity. This bond has a 7.50% annual coupon, paid semiannually,
sells at a price of $1059, and has a par value of $1,000. If the
firm’s tax rate is 35%, what is the component cost of debt for use
in the WACC calculation (i.e. after-tax cost of debt)?

Please show all the work for the answers.

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