(Individual or component costs of capital) Compute the cost of capital for the firm for the following: a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 8.13 percent while the borrowing firm's corporate tax rate is 34 percent. b. Common stock for a firm that paid a $1.08 dividend last year. The dividends are expected to grow at a rate of 5.6 percent per year into the foreseeable future. The price of this stock is now $24.67. c. A bond that has a $1,000 par value and a coupon interest rate of 11.9 percent with interest paid semiannually. A new issue would sell for $1,154 per bond and mature in 20 years. The firm's tax rate is 34 percent. d. A preferred stock paying a dividend of 7.7 percent on a $95 par value. If a new issue is offered, the shares would sell for $84.63 per share.
(Individual or component costs of capital) Compute the cost of capital for the firm for the following: a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 8.13 percent while the borrowing firm's corporate tax rate is 34 percent. b. Common stock for a firm that paid a $1.08 dividend last year. The dividends are expected to grow at a rate of 5.6 percent per year into the foreseeable future. The price of this stock is now $24.67. c. A bond that has a $1,000 par value and a coupon interest rate of 11.9 percent with interest paid semiannually. A new issue would sell for $1,154 per bond and mature in 20 years. The firm's tax rate is 34 percent. d. A preferred stock paying a dividend of 7.7 percent on a $95 par value. If a new issue is offered, the shares would sell for $84.63 per share.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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FINANCE
PLEASE ANSWER C & D
Transcribed Image Text:(Individual or component costs of capital) Compute the cost of capital for the firm for the following:
a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 8.13 percent
while the borrowing firm's corporate tax rate is 34 percent.
b. Common stock for a firm that paid a $1.08 dividend last year. The dividends are expected to grow at a rate of 5.6
percent per year into the foreseeable future. The price of this stock is now $24.67.
c. A bond that has a $1,000 par value and a coupon interest rate of 11.9 percent with interest paid semiannually. A new
issue would sell for $1,154 per bond and mature in 20 years. The firm's tax rate is 34 percent.
d. A preferred stock paying a dividend of 7.7 percent on a $95 par value. If a new issue is offered, the shares would sell
for $84.63 per share.
a. The after-tax cost of debt debt for the firm is 5.37 %. (Round to two decimal places.)
b. The cost of common equity for the firm is 10.22 %. (Round to two decimal places.)
c. The after-tax cost of debt for the firm is%. (Round to two decimal places.)
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