A company has a 40% marginal tax rate. Their new bonds will have an 11% coupon and also yield 11%. Calculate their cost of debt.

Select one:

A. 4.4%

B. 6.6%

C. 8.0%

D. 11.0%

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Funds acquired by the firm through retained earnings have no cost because there are no dividend or interest payments associated with them, but capital raised by selling new stock or bonds does have a cost.

Select one:

True

False

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A firm's new bonds will have a 13% current yield. The current price of common shares is $40.00; the most recent dividend (D0) was $2.00. The firm's tax rate is 35%. The firm is expected to grow at 9% for the foreseeable future. What is their cost of retained earnings?

Select one:

A. 13.00%

B. 14.00%

C. 14.25%

D. 14.45%

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A share of preferred stock has a par value of $100 and pays a dividend of $3.00. If you need to earn a 12% return on your investment, how much would you be willing to pay for this stock?

Select one:

A. $33.33

B. $25.00

C. $12.00

D. $8.83

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Which of the following statements about the cost of capital is NOT correct?

Select one:

A. A company?s capital structure affects its weighted average cost of capital.

B. Weighted average cost of capital calculations should be based on after-tax costs.

C. If a company?s tax rate increases then, all else being equal, its weighted average cost of capital will increase.

D. Flotation costs can increase the weighted average cost of capital.

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A firm's new bonds will have a 13% current yield. The current price of common shares is $40.00; the most recent dividend (D0) was $2.00. The firm's tax rate is 35%. The firm is expected to grow at 9% for the foreseeable future. What is their cost of debt?

Select one:

A. 13.00%

B. 8.45%

C. 5.00%

D. 4.55%