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Hello sir/ Ma'am iam submitting this question for the second time , i din not get proper answers, could you please answer all the options.
Hello sir/ Ma'am iam submitting this question for the second time , i din not get proper answers, could you please answer all the options.
(Individual or component costs of capital) Compute the cost of the following a. A bond that has $1,000 par value (face value) and a contract or coupon interest rate of 12 percent. A new issue would have a floatation cost of 7 percent of the $1,145 market value. The bonds mature in 12 years. The firm's avragetax rate is 30 percent and its marginal tax rate is 37 percent. 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 dividend-earnings ratio of 30 percent. The price of this stock is now $23, but 8 percent flotation costs are anticipated c. Intemal common equity when the current market price of the common stock is $52. The expected dividend this coming year should be $3.30, increasing thereafter at an annual growth rate of 9 percent. The corporation's tax rate is 37 percent. d. A preferred stock paying adividend of 9 percent on a 150 par value. If a new issue is offered, flotation costs will be 14 percent of the current price of $162 e. A bond selling to yield 9 percent after flotation costs, but before adjusting for the marginal corporate tax rate of 37 percent In other words, 9 percent is the rate that equates the net proceeds from the bond with the present value of the future cash flows (principal and interest) a. What is the firm's after-tax cost of debt on the bond? 6.93 % (Round to two decimal places.) b. What is the cost of external common equity? (Round to two decimal places.)Step by Step Solution
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