In order to remain an industry leader, Company Y will need to raise $1.5 million to buy a new computer system. Its current operations are expected to add $500,000 to retained earnings during the coming year. Its current debt is currently valued at par, has a 7% coupon rate, pays interest semiannually, and will mature in 6 years. The common stock is selling in the market at $38 per share, and has 145,000 shares outstanding. The company just paid a common stock dividend of $1.75 per share. The dividends are expected to grow at a constant 5% per year. The current preferred stock (12,500 shares outstanding), carries a dividend of $4.00 per share and is selling in the market for 67.50 per share. The corporate tax rate is 35%.

Company Y can sell new common stock at current market price with a flotation cost of 4%, new preferred stock with a dividend of $4.00 per share to sell at $65 per share, and new semiannual coupon bonds with a par value of $1000 with a 20 year maturity and a 9% coupon, to sell at 97.5% of par.

What is the after-tax cost of debt?

Take Test: Final Exam (Abitu x x u Chapter 03 Working with Fint x a AdFJy - shrink'your URLs ant 'X n Self Assessn'ernnt Cost of Ca x ( C' O I 0 Secure httpszllurn|.umassonline.net/webapps/assessment/take/Iaunch.jsp?course_assessment_id=_41452_1&course_id=_19392_1&content_id=_89030... i} I 5 EEE Apps * Bookmarks 6 google M Gmail Y! Yahoo! JAPAN W Wikipedia Nature Publishing G... Breaking News, Ana... :11 G All Los Angeles Dea... E Other Bookmarks Company Y has the following information on its balance sheet: I Offer V " . " , x I Liabilities Cash 1,000,000 Accounts Payable 1,000,000 Accounts Receivable 1,000,000 Notes Payable 1,250,000 Inventory 750,000 Current Liabilities 2,250,000 Current Assets 2,750,000 Long Term Debt 2,500,000 Preferred Stock 1,250,000 Net Fixed Assets 8,250,000 Common Stock and 5,000,000 Retained Earnings Total Assets 11,000,000 Total Liabilities + 11,000,000 Equity In order to remain an industry leader, Company Y will need to raise $1.5 million to buy a new computer system. Its current operations are expected to add $500,000 to retained earnings during the coming year. Its current debt is currently valued at par, has a 7% coupon rate, pays interest semiannually, and will mature in 6 years. The common stock is selling in the market at $38 per share, and has 145,000 shares outstanding. The company just paid a common stock dividend of $1 .75 per share. The dividends are expected to grow at a constant 5% per year. The current preferred stock (12,500 shares outstanding), carries a dividend of $4.00 per share and is selling in the market for 67.50 per share. The corporate tax rate is 35%. Company Y can sell new common stock at current market price with a otation cost of 4%, new preferred stock with a dividend of $4.00 per share to sell at $65 per share, and new semiannual coupon bonds with a par value of $1000 with a 20 year maturity and a 9% coupon, to sell at 97.5% of par. What is the after-tax cost of debt? '7' a- 6.03%