Chapter 14 The Cost of Capital Question 1: Compute the cost of capital for the firm for the following A bond that has a $1,000 par value (face value). And a contract or coupon interest rate of 1 1%. Interest payments are $55 and are paid semiannually. The bonds have a current market value of S1,125 and will mature in 10 years. The firms' marginal tax rate is 34% A new common stock issue that paid a $1.80 dividend last year. The firm's dividends are expected to continue to grow at 7% per year, forever. The prince of the firm's common stock is now $27.50. A preferred stock that sells for $125, pays a 9% dividend, and has $100 pay value. A bond selling to yield 12% where the firm's tax rate is 34% a. b. c. d. Question 2: The target capital structure of a firm s 50% common stock, 15% preferred stock and 35% debt. If the cost of common equity for this firm is 20%, of preferred stock is 12% and the before-tax cost of debt is 10%. What is the firm's cost of capital, "The tax rate is 34%