(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 11.4 percent. Interest payments are $57.00 and are paid semiannually. The bonds have a current market value of $1,127 and will mature in 10 years. The firm's marginal tax rate is 34 percet b. A new common stock issue that paid a $1.77 dividend last year. The firm's dividends are expected to continue to grow at 7.6 percent per year, forever. The price of the firm's common stock is now $27.57. c. A preferred stock that sells for $142, pays a dividend of 8.9 percent, and has a $100 par value. d. A bond selling to yield 12.4 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 11.4 percent. Interest payments are $57.00 and are paid semiannually. The bonds have a current market value of $1,127 and will mature in 10 years. The firm's marginal tax rate is 34 percet b. A new common stock issue that paid a $1.77 dividend last year. The firm's dividends are expected to continue to grow at 7.6 percent per year, forever. The price of the firm's common stock is now $27.57. c. A preferred stock that sells for $142, pays a dividend of 8.9 percent, and has a $100 par value. d. A bond selling to yield 12.4 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
Related questions
Question
Write the formula for the cost of capital. Explain how you would estimate each component of the cost of capital. Assume you would like to estimate the cost of debt for XYZ Company. XYZ’s bond has a semi-annual 5.25 % coupon rate and a par value of $1,000, with a market price of 86 percent of the par. Assume a number of years to maturity that has not been chosen by any other students between 10 to 50 years, then estimate the cost of debt for XYZ. Assume the beta of XYZ is 1.20, and the capital structure of XYZ is 70 % equity financing and 30 % debt financing, and the tax rate is 21 %. Estimate the cost of capital for XYZ Company.
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 11.4 percent. Interest payments are
$57.00 and are paid semiannually. The bonds have a current market value of $1,127 and will mature in 10 years. The firm's
marginal tax rate is 34 percet
b. A new common stock issue that paid a $1.77 dividend last year. The firm's dividends are expected to continue to grow at 7.6
percent per year, forever. The price of the firm's common stock is now $27.57.
c. A preferred stock that sells for $142, pays a dividend of 8.9 percent, and has a $100 par value.
d. A bond selling to yield 12.4 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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