Corp Fin Question currently, following, regarding, capital

needhelp1700

The following data is regarding the Link Company:
A target debt/equity ratio of 0.5
Bonds are currently yielding 10%
Link is a constant growth firm that just paid a dividend of $3.00
Stock sells for $31.50 per share, and has a growth rate of 5%
Marginal tax rate is 40%
What is Link’s aftertax cost of capital?
A) 12.0%.
B) 10.5%.
C) 12.5%.

Nishant1

A
Kd=Yield x (1Tax)
Kd=10% x (.6)=6%
Po=(Do x (1+g))/(Keg)
((Do x (1+g))/Po) + g=Ke
(($3 x (1.05))/31.5) + g=15%
Kd=6%
Ke=15%
D/E=.5 Wd=.33333 We=.66667
WACC= .3333(6) + .66667(15)=12%

kmf229

I would have calculated to get the answer as follows:
Kd=Yield x (1Tax)
Kd=10% x (.6)=6%
Po=(Do x (1+g))/(Keg)
((Do x (1+g))/Po) + g=Ke
(($3 x (1.05))/31.5) + g=15%
Kd=6%
Ke=15%
D/E=.5 Wd=.5 We=.5
WACC= .5(6) + .5(15)=10.5% to get B and it would have been the wrong answer.
Please explain why you used Wd = .33333 & We = .66667.
Thanks!

mdfb79

Damil 4 real
D/E=1/2(I) and D+E=1(II) this imply that E= 2D from I now you replace that value into equation II and you have D+2D=1 meaning D=1/3=0.333 and E=0.6666
Correct answers is B

soddy1979

Answer is A