Calculate the after-tax cost of debt (i.e., (1-tax rate)*rD Here is the condensed 2015 balance sheet for Skye Computer Company (in thousands of dollars): CONDENSED BALANCE SHEET FOR SKYE COMPUTER COMPANY FY2015 Current assets $2,000 Net fixed assets 3,000 Total assets $5,000 Total debt $2,100 Preferred stock 250 Common stock 1,300 Retained earnings 1,350 Total common equity $2,650 Total liabilities & equity $5,000 The firm's marginal tax rate is 35%. The firm's currently outstanding 10% annual coupon rate long-term debt sells at $1,051.11. The debt matures in 7 years. Coupon interest is paid semiannually. Skye's preferred stock pays a dividend of $3.30 per share, and its preferred stock sells for $30 per share. Skye's earnings per share last year were $3.20. The common stock sells for $55.00, last year’s dividend (D0) was $2.10, and a flotation cost (i.e, f ) of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. The market risk premium is 5%, the risk-free rate is 6%, and Skye's beta is 1.516
Calculate the after-tax cost of debt (i.e., (1-tax rate)*rD Here is the condensed 2015 balance sheet for Skye Computer Company (in thousands of dollars): CONDENSED BALANCE SHEET FOR SKYE COMPUTER COMPANY FY2015 Current assets $2,000 Net fixed assets 3,000 Total assets $5,000 Total debt $2,100 Preferred stock 250 Common stock 1,300 Retained earnings 1,350 Total common equity $2,650 Total liabilities & equity $5,000 The firm's marginal tax rate is 35%. The firm's currently outstanding 10% annual coupon rate long-term debt sells at $1,051.11. The debt matures in 7 years. Coupon interest is paid semiannually. Skye's preferred stock pays a dividend of $3.30 per share, and its preferred stock sells for $30 per share. Skye's earnings per share last year were $3.20. The common stock sells for $55.00, last year’s dividend (D0) was $2.10, and a flotation cost (i.e, f ) of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. The market risk premium is 5%, the risk-free rate is 6%, and Skye's beta is 1.516
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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Calculate the after-tax cost of debt (i.e., (1-tax rate)*rD
| Here is the condensed 2015 |
||
| CONDENSED BALANCE SHEET FOR SKYE COMPUTER COMPANY | ||
| FY2015 | ||
| Current assets | $2,000 | |
| Net fixed assets | 3,000 | |
| Total assets | $5,000 | |
| Total debt | $2,100 | |
| 250 | ||
| Common stock | 1,300 | |
| |
1,350 | |
| Total common equity | $2,650 | |
| Total liabilities & equity | $5,000 |
The firm's marginal tax rate is 35%. The firm's currently outstanding 10% annual coupon rate long-term debt sells at $1,051.11. The debt matures in 7 years. Coupon interest is paid semiannually.
Skye's preferred stock pays a dividend of $3.30 per share, and its preferred stock sells for $30 per share.
Skye's earnings per share last year were $3.20. The common stock sells for $55.00, last year’s dividend (D0) was $2.10, and a flotation cost (i.e, f ) of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%.
The market risk premium is 5%, the risk-free rate is 6%, and Skye's beta is 1.516.
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