1-

Octopus Transit has a $1,000 par value bond outstanding with 10 years to maturity. The bond carries an annual interest payment of $80, payable semiannually, and is currently selling for $1,093. Octopus is in a 20 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar.

a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. (Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Yield on new issue %

b. Make the appropriate tax adjustment to determine the aftertax cost of debt. (Do not round intermediate calculations. Round the final answer to 3 decimal places.)

Cost of debt %

2-

The Meredith Company issued $100 par value preferred shares 10 years ago. The shares provided an 5 percent yield at the time of issue. Each preferred share is now selling for $60.

What is the current yield or cost of preferred stock? (Disregard flotation costs.) (Round the final answer to 2 decimal places.)

Yield %