Question
A firm has as its target capital structure 40% equity and 60% bonds. The firm does not use any preferred stock. The firm paid a
A firm has as its target capital structure 40% equity and 60% bonds. The firm does not use any preferred stock. The firm paid a dividend this year (D0) of $1.10 and the firm expects dividends to grow at 6% per year. P0 is $11.00. The firm has a bond with a coupon rate of 10% annual interest, five years left to mature, and is currently selling in the market at $1,025. The firm's tax rate is 30%. What is the firm's cost of capital?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To calculate the firms cost of capital we need to calculate the cost of equity and the cost of debt and then combine them based on the target capital ...
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Step: 2
Step: 3
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
