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14.14

14.15

(Cost of debt) Gillian Stationery Corporation needs to raise $587,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 7.9 percent with interest paid semiannually and a 10 -year maturity. Investors require a rate of return of 10.9 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 firm's after-tax cost of debt if the firm's tax rate is 34 percent? a. The market value of the bonds is $ (Round to the nearest cent.) b. The number of bonds that the company needs to sell is bonds. (Round up to the nearest integer.) c. The firm's after-tax cost of debt is \%. (Round to two decimal places.) (Weighted average cost of capital) Crypton Electronics has a capital structure consisting of 39 percent common stock and 61 percent debt. A debt issue of $1,000 par value, 5.6 percent bonds that mature in 15 years and pay annual interest will sell for $978. Common stock of the firm is currently selling for $30.74 per share and the firm expects to pay a $2.33 dividend next year. Dividends have grown at the rate of 5.1 percent per year and are expected to continue to do so for the foreseeable future. What is Crypton's cost of capital where the firm's tax rate is 30 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. Crypton's cost of capital is %. (Round to three decimal places.) (Cost of debt) Belton Distribution Company is issuing a $1,000 par value bond that pays 8.6 percent annual interest and matures in 15 years that is paid semiannually. Investors are willing to pay $965 for the bond. The company is in the 20 percent marginal tax bracket. What is the firm's after-tax cost of debt on the bond? The firm's after-tax cost of debt on the bond is \%. (Round to two decimal places.)