The before-tax bank charges are 11.0% for the short-term borrowings, 10.0% for the long-term borrowings, and 10.5% on the mortgage. The shareholders expect to earn 16%. Assume that the company’s income tax rate is 50%.
1. Calculate the company’s after-tax cost of borrowing rounded to the nearest tenth of a percent.
2. Calculate the company’s weighted average cost of capital rounded to the nearest tenth of a percent.