A firm is planning on issuing new bonds and equity. The semiannual bonds will have a coupon rate 9% with a maturityof 15 years. The preferred stock pays a dividend of $6. The common stock's current dividend is $2.50 with a growthrate of 7%. The flotation costs on bonds is 5%, 7% on preferred stocks and 10% on common stock. The tax rate is35%. The current price of the bonds is $975 while the price of the common stock is $53.50 and $55 for the preferredstock. If the growth rate falls to 6%, what is change in the cost of external equity?external equity falls by 8.5%external equity falls by 7%external equity falls by 6.5%external equity falls by 6%

Flotation cost is the cost required to raise the money from the market that include cost of…

Answered: A firm is planning on issuing new bonds…

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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Similar questions

A firm raises capital by selling $30,000 worth of debt with flotation costs equal to 2% of its par value. If the debt matures in 15 years and has an annual coupon interest rate of 7%, what is the bond's YTM?
K Avicorp has a $11.5 million debt issue outstanding, with a 5.8% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently priced at 93.67% of par value a. What is Avicorp's pretax cost of debt? b. If Avicorp faces a 28% tax rate, what is its after-tax cost of debt? Note Assume that the firm will always be able to utilize its full interest tax shield. BECER a. The cost of debt is % per year. (Round to two decimal places)
I need all subparts please .
Harbor Inc. wants to raise $80 million by issuing 10-year zero-coupon bonds at an annual interest rate of 5.4%. What should be the total face value of the bonds (in $ million)?
A major manufacturer is reevaluating its bonds since it is planning to issue a new bond in the current market. The firm's outstanding bond issue has 7 years remaining till maturity. The bonds were issued with an 8 percent coupon rate (paid quarterly) and selling at par value. The required rate of return is 10 percent. What is the current value of these securities?
Bernard co. has 7% coupon bonds on the market that have 14 years left to maturity. The bonds will make annual payments. If the YTM on these bonds is 8%, what is the current bond price (in $ dollars)? (Assume the face value of the bond is $1,000) $
Silver Run Inc. has 6% coupon bonds outstanding that pay interest semiannually and have 15 years remaining until maturity. They carry a face value of $1000. These bonds are currently selling for $1143. What price should these bonds sell for two years from now if their yield drops by 100 basis points over the two years?
A company has bonds which currently see for 82% of par. They pay a 6% coupon semi - annually, and have 12 years left to maturity. What is the cost of debt?
A firm raises capital by selling $18,000 worth of debt with flotation costs equal to 2% of its par value. If the debt matures in 10 years and has an annual coupon interest rate of 9%, what is the bond's YTM?

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