a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.1 percent. Interest payments are $50.50 and are paid semiannually. The bonds have current market value of $1,122 and will mature in 10 years. The firm's marginal tax rate is 34 percet. b. A new common stock issue that paid a $1.85 dividend last year. The firm's dividends are expected to continue to grow at 7.8 percent per year, forever. The price of the firm's common stock is now $27.25. c. A preferred stock that sells for $150, pays a dividend of 8.8 percent, and has a $100 par value. d. A bond selling to yield 11.8 percent where the firm's tax rate is 34 percent.
a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.1 percent. Interest payments are $50.50 and are paid semiannually. The bonds have current market value of $1,122 and will mature in 10 years. The firm's marginal tax rate is 34 percet. b. A new common stock issue that paid a $1.85 dividend last year. The firm's dividends are expected to continue to grow at 7.8 percent per year, forever. The price of the firm's common stock is now $27.25. c. A preferred stock that sells for $150, pays a dividend of 8.8 percent, and has a $100 par value. d. A bond selling to yield 11.8 percent where the firm's tax rate is 34 percent.
Chapter7: Types And Costs Of Financial Capital
Section: Chapter Questions
Problem 11EP
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Question
![(Individual or component costs of capital) Compute the cost of capital for the firm for the following:
a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.1 percent. Interest payments are $50.50 and are paid semiannually. The bonds have a current
market value of $1,122 and will mature in 10 years. The firm's marginal tax rate is 34 percet.
b. A new common stock issue that paid a $1.85 dividend last year. The firm's dividends are expected to continue to grow at 7.8 percent per year, forever. The price of the firm's common stock is
now $27.25.
c. A preferred stock that sells for $150, pays a dividend of 8.8 percent, and has a $100 par value.
d. A bond selling to yield 11.8 percent where the firm's tax rate is 34 percent.
a. The after-tax cost of debt is %. (Round to two decimal places.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6a8dd69c-1dcf-4ca5-adf3-60718a41c225%2Fd33a643f-4df2-4f0e-8e3e-c64a992d2ab3%2F8ugx1z_processed.png&w=3840&q=75)
Transcribed Image Text:(Individual or component costs of capital) Compute the cost of capital for the firm for the following:
a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.1 percent. Interest payments are $50.50 and are paid semiannually. The bonds have a current
market value of $1,122 and will mature in 10 years. The firm's marginal tax rate is 34 percet.
b. A new common stock issue that paid a $1.85 dividend last year. The firm's dividends are expected to continue to grow at 7.8 percent per year, forever. The price of the firm's common stock is
now $27.25.
c. A preferred stock that sells for $150, pays a dividend of 8.8 percent, and has a $100 par value.
d. A bond selling to yield 11.8 percent where the firm's tax rate is 34 percent.
a. The after-tax cost of debt is %. (Round to two decimal places.)
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