Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Question
Chapter 9, Problem 2SP
a)
Summary Introduction
To determine: The after tax cost of debt.
b)
Summary Introduction
To determine: The cost of 30% dividend paying stock.
c)
Summary Introduction
To determine: The cost of $3.50dividend paying stock with a market price of $43.
d)
Summary Introduction
To determine: The cost of
Summary Introduction
To determine: The after tax cost of debt.
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(Individual or component costs of capital) Compute the cost of capital for the firm for the following:
a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.1 percent. Interest payments are $50.50 and are paid semiannually. The bonds have a current
market value of $1,122 and will mature in 10 years. The firm's marginal tax rate is 34 percet.
b. A new common stock issue that paid a $1.85 dividend last year. The firm's dividends are expected to continue to grow at 7.8 percent per year, forever. The price of the firm's common stock is
now $27.25.
c. A preferred stock that sells for $150, pays a dividend of 8.8 percent, and has a $100 par value.
d. A bond selling to yield 11.8 percent where the firm's tax rate is 34 percent.
a. The after-tax cost of debt is %. (Round to two decimal places.)
(Individual or component costs of capital) Compute the cost of capital for the firm for the following:
a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.9 percent. Interest payments are $54.50 and are paid semiannually. The bonds have a current market value of
$1,121 and will mature in 10 years. The firm's marginal tax rate is 34 percet.
b. A new common stock issue that paid a $1.76 dividend last year. The firm's dividends are expected to continue to grow at 6.8 percent per year, forever. The price of the firm's common stock is now $27.84
c. A preferred stock that sells for $144, pays a dividend of 8.6 percent, and has a $100 par value.
d. A bond selling to yield 12.3 percent where the firm's tax rate is 34 percent.
Calculate the cost of capital for a bond that has a $1,000 par value and a contract or coupon interest rate of 11%. Interest payments are $55 and paid semi-annually. The bond has a current market value of $1,000 and will mature in 20 years. The firm's marginal tax rate is 30%
a. 11%
b. 10.7%
c. 7.7%
d. 30%
Chapter 9 Solutions
Foundations Of Finance
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