4.- The preferred stock of Walter Industries Inc. currently sells for $35.09 a share and pays $2.45

in dividends annually. What is the firm's cost of capital for the preferred stock?

The firm's cost of capital for the preferred stock is

______-%.

5-.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 11.9

percent. Interest payments are $59.50

and are paid semiannually. The bonds have a current market value of $1,120

and will mature in 10 years. The firm's marginal tax rate is 34 percet.

b.A new common stock issue that paid a $1.79

dividend last year. The firm's dividends are expected to continue to grow at

6.9 percent per year, forever. The price of the firm's common stock is now

$27.53.

c.A preferred stock that sells for $152, pays a dividend of 8.5 percent, and has a $100 par value.

d.A bond selling to yield 11.3 percent where the firm's tax rate is 34 percent.

a.The after-tax cost of debt is _____%

6-.As a member of the Finance Department of Ranch Manufacturing, your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the firm's present capital structure reflects the appropriate mix of capital sources for the firm, you have determined the market value of the firm's capital structure as follows:

To finance the purchase, Ranch Manufacturing will sell 10-year bonds paying interest at a rate of 7.4

percent per year (with semiannual payment) at the market price of $1,068. Preferred stock paying a

$1.97 dividend can be sold for $24.47. Common stock for Ranch Manufacturing is currently selling for

$55.04 per share and the firm paid a $2.96 dividend last year. Dividends are expected to continue growing at a rate of 4.9 percent per year into the indefinite future. If the firm's tax rate is 30

percent, what discount rate should you use to evaluate the equipment purchase?

a.Calculate component weights of capital.

. The weight of debt in the firm's capital structure is

Source of Capital	Market Values
Bonds	$4,300,000
Preferred stock	$2,000,000
Common stock	$6,500,000