Question
1. A company's 6% coupon rate, semiannual payment, $1,000 par value bond that matures in 25 years sells at a price of $697.63. The company's
1. A company's 6% coupon rate, semiannual payment, $1,000 par value bond that matures in 25 years sells at a price of $697.63. The company's federal-plus-state tax rate is 35%. What is the firm's after-tax component cost of debt for purposes of calculating the WACC? Round your answer to two decimal places. (Hint: Base your answer on the nominal rate.)
2. Radon Homes's current EPS is $7.30. It was $4.74 5 years ago. The company pays out 30% of its earnings as dividends, and the stock sells for $33.
a. Calculate the historical growth rate in earnings. Round your answer to two decimal places. (Hint: This is a 5-year growth period.) % b.Calculate the next expected dividend per share, D1 Assume that the past growth rate will continue. Round your answer to the nearest cent. (Hint: D0 = 0.30($7.30) = $2.19). $ c. What is Radon's cost of equity, rs? Round your answer to two decimal places. %
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