(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 11.3 percent. Interest payments are $56.50 and are paid semiannually. The bonds have a current market value of $1,126 and will mature in 10 years. The firm's marginal tax rate is 34 percet. b. Anew common stock issue that paid a $1.75 dividend last year. The firm's dividends are expected to continue to grow at 6.7 percent per year, forever. The price of the firm's common stock is now $27.72. c. A preferred stock that sells for $122, pays a dividend of 8.1 percent, and has a $100 par value. d. A bond selling to yield 11.2 percent where the firm's tax rate is 34 percent. a. The after-tax cost of debt is %. (Round to two decimal places.)
(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 11.3 percent. Interest payments are $56.50 and are paid semiannually. The bonds have a current market value of $1,126 and will mature in 10 years. The firm's marginal tax rate is 34 percet. b. Anew common stock issue that paid a $1.75 dividend last year. The firm's dividends are expected to continue to grow at 6.7 percent per year, forever. The price of the firm's common stock is now $27.72. c. A preferred stock that sells for $122, pays a dividend of 8.1 percent, and has a $100 par value. d. A bond selling to yield 11.2 percent where the firm's tax rate is 34 percent. a. The after-tax cost of debt is %. (Round to two decimal places.)
Chapter7: Types And Costs Of Financial Capital
Section: Chapter Questions
Problem 11EP
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![(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 11.3 percent. Interest payments are $56.50 and are paid semiannually. The bonds have a
current market value of $1,126 and will mature in 10 years. The firm's marginal tax rate is 34 percet.
b. Anew common stock issue that paid a $1.75 dividend last year. The firm's dividends are expected to continue to grow at 6.7 percent per year, forever. The price of the firm's common
stock is now $27.72.
c. A preferred stock that sells for $122, pays a dividend of 8.1 percent, and has a $100 par value.
d. A bond selling to yield 11.2 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%2Fbfcd82b7-9f4b-4e80-bea9-f22c77c01173%2F04a2b041-ce66-47fa-ba62-639701496335%2F65aqfy4_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 11.3 percent. Interest payments are $56.50 and are paid semiannually. The bonds have a
current market value of $1,126 and will mature in 10 years. The firm's marginal tax rate is 34 percet.
b. Anew common stock issue that paid a $1.75 dividend last year. The firm's dividends are expected to continue to grow at 6.7 percent per year, forever. The price of the firm's common
stock is now $27.72.
c. A preferred stock that sells for $122, pays a dividend of 8.1 percent, and has a $100 par value.
d. A bond selling to yield 11.2 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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