1. You have the following data Debt- 50000 bonds with 5 % coupon rate. Debt is repayable annually.1 yrs to maturity and is selling at $1050 per bond. Common stock: 1000 000 shares of common stock outstanding selling at $65 [er share and has a beta of 1.1 Preferred stock: 150000 preferred shares outstanding currently trading @ $90 per share with an annual dividend of $6.50 .mkt risk premium is 7% if rf -2.5% Тах «35% Determine a. cost of common stock b. cost of preffered stock c. cost of debt before tax d. after tax kd e. WACC
1. You have the following data Debt- 50000 bonds with 5 % coupon rate. Debt is repayable annually.1 yrs to maturity and is selling at $1050 per bond. Common stock: 1000 000 shares of common stock outstanding selling at $65 [er share and has a beta of 1.1 Preferred stock: 150000 preferred shares outstanding currently trading @ $90 per share with an annual dividend of $6.50 .mkt risk premium is 7% if rf -2.5% Тах «35% Determine a. cost of common stock b. cost of preffered stock c. cost of debt before tax d. after tax kd e. 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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1. You have the following data
Debt- 50000 bonds with 5 % coupon rate. Debt is repayable annually..15 yrs to maturity and is selling
at $1050 per bond.
Common stock: 1000 000 shares of common stock outstanding selling at $65 [er share and has a
beta of 1.1
Preferred stock: 150000 preferred shares outstanding currently trading @ $90 per share with an
annual dividend of $6.50
.mkt risk premium is 7% if rf =2.5%
Tax =35%
Determine
a.
cost of common stock
b. cost of preffered stock
c. cost of debt before tax
d.
after tax kd
e. WACC
2. Edgars is planning to issue new debt at an interest rate of 8%. Edgars is in the 40% marginal tax
rate. What is the company's cost of debt capital
3. Suppose the Edgars Share sells for $21 and next year dividend is expected to be $1. Edgars has a
return on equity (ROE) of 12% and they are expected to pay out 40% of their earnings. What is the
cost of the retained equity?
4. Suppose the Edgars Share sells for $21 and next year dividend is expected to be $1. Edgars has a
return on equity (ROE) of 12% and they are expected to pay out 40% of their earnings. Assuming the
previous growth rate of 7, 2% and that Edgars has a floatation cost of 10%. Calculate the new cost of
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