1. Micro Advantage issued a $6,000,000 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 105 (i.e., 105% of par value). If the firm's tax bracket is 20%, what is the current after-tax cost of this debt? 2. Micro Advantage has $6,000,000 preferred stock outstanding that it sold for $22 per share. The preferred stock has a per share par value of $23 and pays a $4 dividend per year. The current market price is $25 per share. The firm's tax bracket is 31%. 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 76,000 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 21%. What is Micro Advantage's weighted-average cost of capital (WACC)?
1. Micro Advantage issued a $6,000,000 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 105 (i.e., 105% of par value). If the firm's tax bracket is 20%, what is the current after-tax cost of this debt? 2. Micro Advantage has $6,000,000 preferred stock outstanding that it sold for $22 per share. The preferred stock has a per share par value of $23 and pays a $4 dividend per year. The current market price is $25 per share. The firm's tax bracket is 31%. 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 76,000 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 21%. What is Micro Advantage's weighted-average cost of capital (WACC)?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:1. Micro Advantage issued a $6,000,000 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 105
(i.e., 105% of par value). If the firm's tax bracket is 20%,
what is the current after-tax cost of this debt?
2. Micro Advantage has $6,000,000 preferred stock
outstanding that it sold for $22 per share. The
preferred stock has a per share par value of $23 and
pays a $4 dividend per year. The current market price
is $25 per share. The firm's tax bracket is 31%. 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 76,000 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 21%. What is
Micro Advantage's weighted-average cost of capital
(WACC)?
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