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A bond with a $1,000 par value and a contract or coupon interest rate of 11%. A new issue would have a floatation cost of 6% of the $1,125 market value. The bonds mature in 7 years. The firm's average tax rate is 30%, and its marginal tax rate is 23%. What is the firm's after-tax cost of the bond? 9.83% 8.55% 7.57% 6.58%

A bond with a $1,000 par value and a contract or coupon interest rate of 11%. A new issue would have a floatation cost of 6% of the $1,125 market value. The bonds mature in 7 years. The firm's average tax rate is 30%, and its marginal tax rate is 23%. What is the firm's after-tax cost of the bond? 9.83% 8.55% 7.57% 6.58%

Essentials Of Investments
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
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A bond with a $1,000 par value and a contract or coupon interest rate of 11%. A new issue would have a floatation cost of 6% of the $1,125 market value. The bonds mature in 7 years. The firm's average tax rate is 30%, and its marginal tax rate is 23%. What is the fırm's after-tax cost of the bond? 9.83% 8.55% 7.57% 6.58%
Transcribed Image Text:A bond with a $1,000 par value and a contract or coupon interest rate of 11%. A new issue would have a floatation cost of 6% of the $1,125 market value. The bonds mature in 7 years. The firm's average tax rate is 30%, and its marginal tax rate is 23%. What is the fırm's after-tax cost of the bond? 9.83% 8.55% 7.57% 6.58%
A new common stock issue that paid a $1.2 dividend last year. The par value of the stock is $15, and earnings per share have grown at a rate of 9% per year. This growth rate is expected to continue into the foreseeable future. The price of this stock is now $25, but 9 % of flotation costs are anticipated. What is the value of net proceeds? What is the cost of external common equity? $22.75;14.75% $25;14.75% $15;10.05% $12;8.94%
Transcribed Image Text:A new common stock issue that paid a $1.2 dividend last year. The par value of the stock is $15, and earnings per share have grown at a rate of 9% per year. This growth rate is expected to continue into the foreseeable future. The price of this stock is now $25, but 9 % of flotation costs are anticipated. What is the value of net proceeds? What is the cost of external common equity? $22.75;14.75% $25;14.75% $15;10.05% $12;8.94%
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