Starset, Inc., has a target debt-equity ratio of 1:05. Its WACC is 8.4 percent, and the tax rate is 24 percent. a. If the company's cost of equity is 12 percent, what is its pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If instead you know that the aftertax cost of debt is 6.5 percent, what is the cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % a. Cost of debt b. Cost of equity %

Debt/ Equity ratio = 1.05

Say Equity is x, then Debt = 1.05x

WACC = Equity* Cost of Equity+ Debt *Cost of Debt *(1- Tax rate)

WACC=8.4%, Tax Rate = 24%

If, Cost of Equity is 12%, then 8.4% = x *(12%)+ 1.05x*Cost of Debt*(1-24%))/(1.05x+x)

or, 0.084 = (0.12x + 1.05x*0.76*cost of debt)/2.05x

or, 0.084*2.05x = 0.12x+ 0.798x * cost of Debt

or, 0.1722x - 0.12x = 0.798x*cost of debt

or, Cost of Debt = 0.0522x/0.798x

or, Cost of Debt = 0.06541 or 6.54%

If after tax cost of debt is 6.5%, then 8.4% = (x*cost of equity + 1.05x*6.5%)/(x+1.05x)

or, 0.084*2.05x = x* cost of equity + 0.06825x

or, x *cost of equity = 0.1722x - 0.06825x

or, cost of equity = 0.10395 or, 10.395%