(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.)

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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Laurel, Inc., has debt outstanding with a coupon rate of 5.8% and a yield to maturity of 6.8%. Its tax rate is 40%. What is Laurel's effective (after-tax) cost of debt? NOTE: Assume that the debt has annual coupons. Note: Assume that the firm will always be able to utilize its full interest tax shield.
6. Jemisen's has expected earnings before interest and taxes of £6,200. Its unlevered cost of capital is 13 per cent and its tax rate is 34 per cent. The firm has debt with both a book and a market value of £2,500. This debt has a 9 per cent coupon and pays interest annually. What is the firm's weighted average cost of capital? A. 12.48 per cent B. 12.66 per cent C. 13.87 per cent D. 14.14 per cent
An all-equity firm that has projected perpetual EBIT of $204,000 per year. The cost of equity is 14.5 percent and the tax rate is 39 percent. The firm can borrow perpetual debt at 5.6 percent. Currently, the firm is considering taking on debt equal to 114 percent of its unlevered value. What is the firm's levered value? $772,386 $858,207 $1,335,132 $1,048,986 $1,239,766
Calculate the weighted average cost of capital (WACC) of company ABC Inc., if: 1. The company's current capital structure consists of 35% from a long-term corporate bond, 30% from new common stock to be issued in the coming months, 20% from retained earnings and the rest is financed by a bank loan. The corporate tax rate is 35%. II. The company's cost of debt from the bond issuance is 9% and from the bank loan is 8%. III. The current stock price of common stock is €10, the current dividend (D) is €0.80 per share and dividends are expected to grow by 2% per year. New common stock flotation costs stand at 3% of the current stock price. OA Around 11% OB. Around 9% OC. Around 8% OD. Around 7% OE. None of the given answers is correct
Current Attempt in Progress You know that the after-tax cost of debt capital for Wildhorse Company is 18.9 percent. If the firm has only one issue of five-year bonds outstanding. Assume the bonds make semiannual coupon payments and the marginal tax rate is 30 percent. Assume the par value of the bonds is $1,000. Excel Template (Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you've been given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem.) Problem 13.15 a1-a2 (Excel Video)(a1) Calculate the pre-tax cost of debt capital. Pre-tax cost of debt capital %
The firm's tax rate is 40%. The firm plans to sell bonds having a par value of $1,000. The coupon rate would be 8%, paid in a single payment each year. The time to maturity would be 30 years. The firm believes that it can sell these bonds for $1,200, and that it will incur flotation costs of $15 per bond. What is the firm's after-tax cost of debt?
Laurel, Inc., has debt outstanding with a coupon rate of 5.8%and a yield to maturity of 7.1%.Its tax rate is 38%.What is Laurel's effective (after-tax) cost of debt? NOTE: Assume that the debt has annual coupons. Note: Assume that the firm will always be able to utilize its full interest tax shield.
The total market value of the common stock of Company A is $12 million, and the total value of its debt is $8 million. The treasurer estimates that the beta of the stock is currently 1.20 and that the market risk premium is 7.5%. The Treasury bill rate is 2.5%. Assume for simplicity that Company A debt is risk-free. The Company's tax rate is 28% . a) What is the pre-tax cost of capital for Company A? b) What is the WACC for Company A ?
Estimate your firm’s Weighted Average Cost of Capital. Assume that the current risk-free rate of interest is 3.5%, the market risk premium is 5%, and the corporate tax rate is 21%. Ø Debt: • Total book value: $10 million • Total market value: $12 million • Coupon rate: 6% • Yield to Maturity: 5% Ø Common Stock: • Total book value: $15 million • Total market value: $20 million • Beta = 1.1 Ø Preferred Stock: • Total book value: $2 million • Total market value: $2.5 million • Price per share: $20 • Dividend per share: $1.50 What is your firm’s Weighted Average Cost of Capital (input as a raw number, i.e. if your answer is 7.1%, input 7.1)?
Calculate the cost of capital for a bond whose yield to maturity is 10% and the firm's tax rate of 34% a. 34% b. 10% c. 11% d. 6.6%
A firm's cost of equity Ue) is 25%. Its before-tax cost of debt is 12%, and itsmarginal tax rate is 40%. The firm's capital structure calls for a debt-to-equityratio of 40%. Calculate the firm's cost of capital (k).
Suppose a firm's debt is selling for one-half of its face value of $1,000. It matures in 10 years and has a coupon rate of 5%. To the nearest percent, what is the pre-tax cost of this firm's debt? O 11% O 12% O 13% O 15%

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