(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 10.5 percent. Interest payments are $52.50 and are paid semiannually. The bonds have a current market value of $1,121 and will mature in 10 years. The firm's marginal tax rate is 34 percet. b. A new common stock issue that paid a $1.84 dividend last year. The firm's dividends are expected to continue to grow at 6.4 percent per year, forever. The price of the firm's common stock is now $27.92. c. A preferred stock that sells for $134, pays a dividend of 9.1 percent, and has a $100 par value. d. A bond selling to yield 11.7 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 10.5 percent. Interest payments are $52.50 and are paid semiannually. The bonds have a current market value of $1,121 and will mature in 10 years. The firm's marginal tax rate is 34 percet. b. A new common stock issue that paid a $1.84 dividend last year. The firm's dividends are expected to continue to grow at 6.4 percent per year, forever. The price of the firm's common stock is now $27.92. c. A preferred stock that sells for $134, pays a dividend of 9.1 percent, and has a $100 par value. d. A bond selling to yield 11.7 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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(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 10.9 percent. Interest payments are $54.50 and are paid semiannually. The bonds have a current market value of $1,121 and will mature in 10 years. The firm's marginal tax rate is 34 percet. b. A new common stock issue that paid a $1.76 dividend last year. The firm's dividends are expected to continue to grow at 6.8 percent per year, forever. The price of the firm's common stock is now $27.84 c. A preferred stock that sells for $144, pays a dividend of 8.6 percent, and has a $100 par value. d. A bond selling to yield 12.3 percent where the firm's tax rate is 34 percent.
(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 11.0 percent. Interest payments are $55.00 and are paid semiannually. The bonds have a current market value of $1,125 and will mature in 10 years. The firm's marginal tax rate is 34 percent.b. A new common stock issue that paid a $1.80 dividend last year. The firm's dividends are expected to continue to grow at 7.0 percent per year, forever. The price of the firm's common stock is now $27.50.c. A preferred stock that sells for $125, pays a dividend of 9.0 percent, and has a $100 par value. d. A bond selling to yield 12.0 percent where the firm's tax rate is 34 percent. a. The after-tax cost of debt is %. (Round to two decimal places.)b. The cost of common equity is %. (Round to two decimal places.)c. The cost of preferred stock is %. (Round to…
MAGGIE LTD Q&S (Computing individual or component costs of capital) Compute the cost of capital foreach of the following sources of financing: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rateof 12 percent. Interest payments are $120 and are paid semiannually. The bond hasa current market value of $1,125 and will mature in 10 years. The firm's marginal tax rate is 34 percent. b. A new common stock issue by a firm that paid a $1.75 dividend last year. The firm's dividends are expected to continue to grow at 8 percent per year forever. The price ofthe firm's common stock is now $28.00. c. A preferred stock that sells for $150, pays a 10 percent annual dividend, and has a $125 par value. d. A bond whose yield to maturity (based on the bond's market price) is 13 percentwhere the firm's tax rate is 34 percent. Identify the features and working formula for this question as per below (add if there's more): - Par Value = Coupon rate = Interest payments =…
The current value of a firm is $1,400. Te firm has $1,000 in pure debt due in one year and the risk-free rate is 6%. The firm's asset will be worth either $1,200 or $1,500 in one year. What is the interest rate on the debt? A. 6.0% B. 7.0% C. 7.5% D. 11.0% E. 13.0%
Consider a firm that is currently all-equity financed. The firm produces a perpetual EBIT of $90m per annum and has an all-equity cost of capital (required return on equity) of 12 per cent. The corporate tax rate is 30 per cent, and the interest rate on debt is 2.5 per cent. The company is to be acquired under a LBO, under which an initial level of debt of $400m will be taken on, with repayment of $100m per year and interest on the principal at the end of each of years 1, 2, and 3. A level of debt of $100m will then be maintained in perpetuity. a. Calculate the present value of interest tax shield, you may assume that you can discount any debt-related cash flows at the cost of debt. b. Calculate the value of the firm before LBO c. Calculate the value of the firm following LBO using the APV method
Sincere Stationary Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate 10.0 percent with interest paid semiannually and a 10-year maturity. Investors require a return of 9.0 percent. A. Compute the market value of the bonds B. How many bonds will the firm have to issue to receive the needed funds C. What is the firms after-tax cost of debt if the firms tax rate is 34 percent
Use the following information to compute the weighted average cost of capital (WACC) of GoGo Inc. ▪ Debt information: The beta of GoGo Inc. stock is 1.5 . Risk-free rate is 4% • Market return is 15% • GoGo's capital structure is 65% equity and 35% debt. The tax rate is 21%. 14.62% Bonds will mature in 9 years. The maturity value is $1,000. GoGo's WACC is.. 15.47% The coupon rate is 8%, with semiannual payments. The current bond price is $1,015. 12.20% 13.32%
A firm has outstanding debt with a coupon rate of 7%, ten years maturity, and a price of $1,000. What is the after-tax cost of debt if the marginal tax rate of the firm is 25%? OA) 4.7% B) 5.5% C) 4.2% D) 5.3%
The cost of equity of a certain company is calculated based on CAPM (risk free rate 1.75%, market premium 6%, beta 1,1), the nominal cost of a long-term loan amounts to 6%,the nominal cost of capital raised from the issue of bonds amounts to 5.5%. Interest on the bonds is paid twice a year, the loan in contrast is repaid on quarterly basis. We also know that the market value of the share capital equals 1000, the nominal value of shares (appearing in the balance sheet as equity) amounts to 800, the nominal value of the long-term credit: 600, the nominal value of the issued bonds: 300. a. On the basis of the available data please, estimate the cost of equity. b. On the basis of the available data and the information that the tax rate amounts to 19%, please, estimate the value of WACC.
Battlefield is trying to determine its cost of debt. The firm has a debt issue outstanding with seven years to maturity that is quoted at 113% of face value. The issue makes semiannual payments and has an embedded coupon payment of 6.4% annually. If the tax rate is 38%, what is the aftertax cost of debt? 2.01 2.76 2.63 1.89 1.82
Consider a project of the Cornell Haul Moving Company, the timing and size of the incremental after-tax cash flows (for an all-equity firm) are shown below in millions: Time Cash Flow -$ 990 125 250 375 500 The firm's tax rate is 34 percent; the firm's bonds trade with a yield to maturity of 8 percent; the current and target debt-equity ratio is 2; if the firm were financed entirely with equity, the required return would be 10 percent. What is the levered after-tax incremental cash flow for year 2? 0000 2 3 4 $185,796,000 $215,152,000 $284,848,000 $267,952,000

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