Below is information regarding the capital structure of Micro Advantage Incorporated. On the basis of this information you are asked to respond to the following three questions: Required: 1. Micro Advantage issued a $5,600,000 par value, 20-year bond a year ago at 98 (L.e., 98% of par value) with a stated rate of 7%. Today, the bond is selling at 110 (.e., 110 % of par value). If the firm's tax bracket is 30%, what is the current after-tax cost of this debt? 2. Micro Advantage has $5,360,000 preferred stock outstanding that it sold for $24 per share. The preferred stock has a per share par value of $25 and pays a $3 dividend per year. The current market price is $30 per share. The firm's tax bracket is 30%. What is the after-tax cost of the preferred stock? 3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has 73,000 shares of common stock outstanding that has a par value of $10 per share and a current market price of $170 per share. The expected after-tax market return on the firm's common equity is 20%. What is Micro Advantage's weighted-average cost of capital (WACC)? Complete this question by entering your answers in the tabs below.
Below is information regarding the capital structure of Micro Advantage Incorporated. On the basis of this information you are asked to respond to the following three questions: Required: 1. Micro Advantage issued a $5,600,000 par value, 20-year bond a year ago at 98 (L.e., 98% of par value) with a stated rate of 7%. Today, the bond is selling at 110 (.e., 110 % of par value). If the firm's tax bracket is 30%, what is the current after-tax cost of this debt? 2. Micro Advantage has $5,360,000 preferred stock outstanding that it sold for $24 per share. The preferred stock has a per share par value of $25 and pays a $3 dividend per year. The current market price is $30 per share. The firm's tax bracket is 30%. What is the after-tax cost of the preferred stock? 3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has 73,000 shares of common stock outstanding that has a par value of $10 per share and a current market price of $170 per share. The expected after-tax market return on the firm's common equity is 20%. What is Micro Advantage's weighted-average cost of capital (WACC)? Complete this question by entering your answers in the tabs below.
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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Below is information regarding the capital structure of Micro Advantage Incorporated. On the basis of this information you are asked to
respond to the following three questions:
Required:
1. Micro Advantage issued a $5,600,000 par value, 20-year bond a year ago at 98 (i.e., 98 % of par value) with a stated rate of 7%.
Today, the bond is selling at 110 (i.e., 110 % of par value). If the firm's tax bracket is 30%, what is the current after-tax cost of this debt?
2. Micro Advantage has $5,360,000 preferred stock outstanding that it sold for $24 per share. The preferred stock has a per share par
value of $25 and pays a $3 dividend per year. The current market price is $30 per share. The firm's tax bracket is 30%. What is the
after-tax cost of the preferred stock?
3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has 73,000 shares of common
stock outstanding that has a par value of $10 per share and a current market price of $170 per share. The expected after-tax market
return on the firm's common equity is 20%. What is Micro Advantage's weighted-average cost of capital (WACC)?
Complete this question by entering your answers in the tabs below.
Required 1
Required 2
Required 3
Micro Advantage issued a $5,600,000 par value, 20-year bond a year ago at 98 (1.e., 98% of par value) with a stated rate of
7%. Today, the bond is selling at 110 (1.e., 110 % of par value). If the firm's tax bracket is 30%, what is the current after-tax
cost of this debt? (Round your answer to 2 decimal places. (i.e. .1234 - 12.34%))
Current after-tax cost of this debl
Required 2
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