Answered step by step
Verified Expert Solution
Question
1 Approved Answer
( Individual or component costs of capital ) Compute the cost of the following:a . A bond that has $ 1 , 0 0 0
Individual or component costs of capital Compute the cost of thefollowing:a A bond that has $ par valueface value and a contract or coupon interest rate of percent. A new issue would have a floatation cost of percent of the $ market value. The bonds mature in years. Thefirms average tax rate is percent and its marginal tax rate is percent.b A new common stock issue that paid a $ dividend last year. The par value of the stock is$ and earnings per share have grown at a rate of percent per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constantdividendearnings ratio of percent. The price of this stock is now $ but percent flotation costs are anticipated.c Internal common equity when the current market price of the common stock is $ The expected dividend this coming year should be $ increasing thereafter at an annual growth rate of percent. Thecorporations tax rate is percent.d A preferred stock paying a dividend of percent on a $ par value. If a new issue isoffered flotation costs will be percent of the current price of $e A bond selling to yield percent after flotationcosts but before adjusting for the marginal corporate tax rate of percent. In otherwords percent is the rate that equates the net proceeds from the bond with the present value of the future cash flowsprincipal andinterestQuestions Belowa. What is thefirms aftertax cost of debt on thebond enter your response hereRound to two decimalplacesb What is the cost of external commonequity enter your response hereRound to two decimalplacesc What is the cost of internal commonequity enter your response hereRound to two decimalplacesd What is the cost of capital for the preferredstock enter your response hereRound to two decimalplacese What is theaftertax cost of debt on thebond enter your response hereRound to two decimalplaces
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started