a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 8.00 percent while the borrowing firm's corporate tax rate is 34 percent. b. Common stock for a firm that paid a $1.05 dividend last year. The dividends are expected to grow at a rate of 5.0 percent per year into the foreseeable future. The price of this stock is now $25.00. c. A bond that has a $1,000 par value and a coupon interest rate of 12.0 percent with interest paid semiannually. A new issue would sell for $1,150 per bond and mature in 20 years. The firm's tax rate is 34 percent. d. A preferred stock paying a dividend of 7.0 percent on a $100 par value. If a new issue is offered, the shares would sell for $85.00 per share. a. The after-tax cost debt debt for the firm is 5.28 %. (Round to two decimal places.) 9.41 %. (Round to two decimal places.) b. The cost of common equity for the firm is c. The after-tax cost of debt for the firm is %. (Round to two decimal places.)
a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 8.00 percent while the borrowing firm's corporate tax rate is 34 percent. b. Common stock for a firm that paid a $1.05 dividend last year. The dividends are expected to grow at a rate of 5.0 percent per year into the foreseeable future. The price of this stock is now $25.00. c. A bond that has a $1,000 par value and a coupon interest rate of 12.0 percent with interest paid semiannually. A new issue would sell for $1,150 per bond and mature in 20 years. The firm's tax rate is 34 percent. d. A preferred stock paying a dividend of 7.0 percent on a $100 par value. If a new issue is offered, the shares would sell for $85.00 per share. a. The after-tax cost debt debt for the firm is 5.28 %. (Round to two decimal places.) 9.41 %. (Round to two decimal places.) b. The cost of common equity for the firm is c. The after-tax cost of debt for the firm is %. (Round to two decimal places.)
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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Module 6 Question 2 Part C
Transcribed Image Text:(Individual or component costs of capital) Compute the cost of capital for the firm for the following:
a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 8.00 percent while the borrowing firm's corporate tax rate is 34 percent.
b. Common stock for a firm that paid a $1.05 dividend last year. The dividends are expected to grow at a rate of 5.0 percent per year into the foreseeable future. The price of this stock is now $25.00.
c. A bond that has a $1,000 par value and a coupon interest rate of 12.0 percent with interest paid semiannually. A new issue would sell for $1,150 per bond and mature in 20 years. The firm's tax rate is 34 percent.
d. A preferred stock paying a dividend of 7.0 percent on a $100 par value. If a new issue is offered, the shares would sell for $85.00 per share.
a. The after-tax cost of debt debt for the firm is 5.28 %. (Round to two decimal places.)
b. The cost of common equity for the firm is
9.41 %. (Round to two decimal places.)
%. (Round to two decimal places.)
c. The after-tax cost of debt for the firm is
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