1. Micro Advantage Issued a $5,400,000 par value, 18-year bond a year ago at 97 (1.e., 97% of par value) with a stated rate of 9%. Today, the bond is selling at 110 (1.e., 110% of par value). If the firm's tax bracket is 35%, what is the current after-tax cost of this debt? 2. Micro Advantage has $5,400,000 preferred stock outstanding that It sold for $24 per share. The preferred stock has a per share par value of $23 and pays a $3 dividend per year. The current market price is $28 per share. The firm's tax bracket is 27%. What is the after-tax cost of the preferred stock? 3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has 53,000 shares of common stock outstanding that has a par value of $10 per share and a current market price of $150 per share. The expected after-tax market return on the firm's common equity is 15%. What Is Micro Advantage's weighted-average cost of capital (WACC)?
1. Micro Advantage Issued a $5,400,000 par value, 18-year bond a year ago at 97 (1.e., 97% of par value) with a stated rate of 9%. Today, the bond is selling at 110 (1.e., 110% of par value). If the firm's tax bracket is 35%, what is the current after-tax cost of this debt? 2. Micro Advantage has $5,400,000 preferred stock outstanding that It sold for $24 per share. The preferred stock has a per share par value of $23 and pays a $3 dividend per year. The current market price is $28 per share. The firm's tax bracket is 27%. What is the after-tax cost of the preferred stock? 3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has 53,000 shares of common stock outstanding that has a par value of $10 per share and a current market price of $150 per share. The expected after-tax market return on the firm's common equity is 15%. What Is Micro Advantage's weighted-average cost of capital (WACC)?
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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Transcribed Image Text:Below is Information regarding the capital structure of Micro Advantage Inc. On the basis of this information you are asked to respond
to the following three questions:
Required:
1. Micro Advantage issued a $5,400,000 par value, 18-year bond a year ago at 97 (1.e., 97% of par value) with a stated rate of 9%.
Today, the bond is selling at 110 (1.e., 110% of par value). If the firm's tax bracket is 35%, what is the current after-tax cost of this debt?
2. Micro Advantage has $5,400,000 preferred stock outstanding that it sold for $24 per share. The preferred stock has a per share par
value of $23 and pays a $3 dividend per year. The current market price is $28 per share. The firm's tax bracket is 27%. What is the
after-tax cost of the preferred stock?
3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has 53,000 shares of common
stock outstanding that has a par value of $10 per share and a current market price of $150 per share. The expected after-tax market
return on the firm's common equity is 15%. What Is Micro Advantage's weighted-average cost of capital (WACC)?
Complete this question by entering your answers in the tabs below.
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Micro Advantage issued a $5,400,000 par value, 18-year bond a year ago at 97 (i.e., 97% of par value) with a stated rate of
9%. Today, the bond is selling at 110 (i.e., 110% of par value). If the firm's tax bracket is 35%, what is the current after-tax
cost of this debt? (Round your answer to 2 decimal places. (i.e. .1234 = 12.34%))
Current after-tax cost of this debt
4.45 %
Required 1
Required 2 >
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