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 10.5%. The bonds have a current market value of $1,121 and will mature in 10 years. The firms marginal tax rate is 34%
B. A new common stock issue that paid a $1.81 dividend last year. The firm’s dividends are expected to continue to grow at 6.7% per year forever. The price of the firm’s common stock is now $27.14.
C. A preferred stock paying a 9.9% dividend on a $129 par value
D. A bond selling to yield 11.5% where the firm’s tax rate is 34%
Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, 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 11.1%. The bond is currently selling for a price of $1,126 and will mature in 10 years. The firm’s tax rate is 34%.
B. If the firm’s bonds are not frequently traded, how would you go about determining a cost of debt for this company?
C. A new common stock issue that paid a $1.73 dividend last year. The par value of the stock is $15, and the firm’s dividends per share have grown at a rate of 8.7% per year. This growth rate is expected to continue into the foreseeable future. The price of this stock is now $28.59
D. A preferred stock paying a 9.1% dividend on a $128 par value. The preferred shares are currently selling for $151.25.
E. A bond selling to yield 13.7% for the purchaser of the bond. The borrowing firm faces a tax rate of 34%.
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