Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

a. a bond that has $1000 par value (face value) and a contract or coupon interest rate of 9 percent. a new issue would have

a. a bond that has $1000 par value (face value) and a contract or coupon interest rate of 9 percent. a new issue would have a floatation cost of 5 percent of the $1100 market value. the bond matures in 10 years. the firm's average tax rate is 30 percent and it's marginal tax rate is 34 percent. what is the firm's after tax cost of debt on the bond?

b. A new common stock issue that paid a $1.80 dividend last year. the par value of the stock is $15 and earnings per share have grown at a rate of 7 percent per year. this growth rate is expected to continue into the foreseeable future. the company maintains a constant divident-earnings ratio of 30 percent. the price of the stock is now $27.50 but 5 percent floatation costs are antcipated. what is the cost of the external common equity?

c. Internal common equity when the current market price of the common stock is $43. The expected dividend this coming year should be $3.50. increasing thereafter at an annual growth rate of 7 percent. the corporation's tax rate is 34 percent. what is the cost of internal common equity?

d. a preferred stock paying a dividend of 9 percent on a $150 par value. IF a new issue is offered, flotation costs will be 12 percent of the current proce of $175. What is the cost of capital for preferred stock?

e. A bond selling to yield 12 percent after floatation costs but before adjusting the marginal corprate tax rate of 34 percent. in other words, 12 percent is the rate that equates the net proceeds from teh bond with the present value of the future cash flows. what is teh after tax cost of debt?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions