(Individual
or component costs of
capital)
Compute the cost of the following:a. A bond that has
$1 comma 0001,000
par value (face value) and a contract or coupon interest rate of
66
percent. A new issue would have a floatation cost of
77
percent of the
$1 comma 1251,125
market value. The bonds mature in
99
years. The firm's average tax rate is 30 percent and its marginal tax rate is
3232
percent.b. A new common stock issue that paid a
$1.801.80
dividend last year. The par value of the stock is $15, and earnings per share have grown at a rate of
99
percent per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant dividend-earnings ratio of 30 percent. The price of this stock is now
$3131,
but
55
percent flotation costs are anticipated.c. Internal common equity when the current market price of the common stock is
$4444.
The expected dividend this coming year should be
$3.203.20,
increasing thereafter at an annual growth rate of
1111
percent. The corporation's tax rate is
3232
percent.d. A preferred stock paying a dividend of
1212
percent on a
$140140
par value. If a new issue is offered, flotation costs will be
1414
percent of the current price of
$171171.
e. A bond selling to yield
1111
percent after flotation costs, but before adjusting for the marginal corporate tax rate of
3232
percent. In other words,
1111
percent is the rate that equates the net proceeds from the bond with the present value of the future cash flows (principal and interest).
a. What is the firm's after-tax cost of debt on the bond?
3.583.58%
(Round to two decimal places.)
b. What is the cost of external common equity?
nothing%
(Round to two decimal places.)
c. What is the cost of internal common equity?
nothing%
(Round to two decimal places.)
d. What is the cost of capital for the preferred stock?
nothing%
(Round to two decimal places.)
e. What is the after-tax cost of debt on the bond?
nothing%
(Round to two decimal places.)
(Individual or component costs of capital) Compute the cost of the following:a. A bond that has...
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