37 BuzzyCorp is very risky, with a Beta of 2.5 The risk-free rate of return is 2.0% and the market return is 8%, Buzzy's marginal tax rate is 22%. Use the capital asset pricing model (CAPM) to estimate Buzzy's cost of equity Answer :- pon. The company expects investors to pay $942 for the 20-year bond. The expected flotation t per bond is $42, and the firm is in the 34% tax bracket. Compute the after-tax cost of the 8. A company is going to issue a $1,000 par value bond that pays a 7% annual cost new debt Answer: rte on 2 yr Treasury securities is 2%, and the return on the S&P 500 index is 1 5%, what is the appropriate cost for retained earnings in determining the firm's cost of capital? 39 GPS Inc. wishes to estimate its cost of retained earnings. The firm's beta is 1.3. The Answer 40. Tempo Corp. will issue preferred stock to finance a new product line. The firm's existing preferred stock pays a dividend of $4.00 per share and is selling for $40 per share. kers have advised Tempo that flotation costs on the new preferred issue would be 5% of the selling price. Tempo's marginal tax rate is 30%. What is the relevant cost of new preferred stock? Answer: Adventure Outfitter Corp. can sell common stock for $27 per share to investors flotation costs associated with selling 41. that require a 17% return. However, the administrative or the stock amount to $2.70 per share. What is the cost of capital for Adventure Outfitter if the corporation raises money by selling common stock? Answer 42. Crandal Dockworks is undergoing a major expansion. The expansion will be financed by issuing new 15-year, $1,000 par, 9% annual coupon bonds The bonds were sold to nvestors at $1,070 each. Crandal's flotation expense on the new bonds was $50 per bond. randal's marginal tax rate is 35%, what is the cost of debt for the newly-issued bonds? nswer